SEC MC 19 2016 Flashcards by Novie Grace

The fiduciary roles, responsibilities and accountabilities of the Board as provided under the law, the company’s articles and by-laws, and other legal pronouncements and guidelines should be clearly made known to all directors as well as to stockholders and other stakeholders.

Principle 2

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The company should be headed by a competent, working board to foster the long-term success of the corporation, and to sustain its competitiveness and profitability in a manner consistent with its corporate objectives and the long- term best interests of its shareholders and other stakeholders.

Principle 1

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Board committees should be set up to the extent possible to support the effective performance of the Board’s functions, particularly with respect to audit, risk management, related party transactions, and other key corporate governance concerns, such as nomination and remuneration. The composition, functions and responsibilities of all committees established should be contained in a publicly available Committee Charter.

Principle 3

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To show full commitment to the company, the directors should devote the time and attention necessary to properly and effectively perform their duties and responsibilities, including sufficient time to be familiar with the corporation’s business.

Principle 4

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The Board should endeavor to exercise objective and independent judgment on all corporate affairs.

Principle 5

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The best measure of the Board’s effectiveness is through an assessment process. The Board should regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses the right mix of backgrounds and competencies.

Principle 6

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Members of the Board are duty-bound to apply high ethical standards, taking into account the interests of all stakeholders.

Principle 7

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The company should establish corporate disclosure policies and procedures that are practical and in accordance with best practices and regulatory expectations.

Principle 8

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The company should establish standards for the appropriate selection of an external auditor, and exercise effective oversight of the same to strengthen the external auditor’s independence and enhance audit quality.

Principle 9

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The company should ensure that material and reportable non-financial and sustainability issues are disclosed.

Principle 10

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The company should maintain a comprehensive and cost-efficient communication channel for disseminating relevant information. This channel is crucial for informed decision-making by investors, stakeholders and other interested users.

Principle 11

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To ensure the integrity, transparency and proper governance in the conduct of its affairs, the company should have a strong and effective internal control system and enterprise risk management framework.

Principle 12

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The company should treat all shareholders fairly and equitably, and also
recognize, protect and facilitate the exercise of their rights.

Principle 13

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The rights of stakeholders established by law, by contractual relations and through voluntary commitments must be respected. Where stakeholders’ rights and/or interests are at stake, stakeholders should have the opportunity to obtain prompt effective redress for the violation of their rights.

Principle 14

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A mechanism for employee participation should be developed to create a symbiotic environment, realize the company’s goals and participate in its corporate governance processes.

Principle 15

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The company should be socially responsible in all its dealings with the communities where it operates. It should ensure that its interactions serve its environment and stakeholders in a positive and progressive manner that is fully supportive of its comprehensive and balanced development.

Principle 16

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the governing body elected by the stockholders that exercises the corporate powers of a corporation, conducts all its business and controls its properties.

Board of Directors

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a group of executives given the authority by the Board of Directors to implement the policies it has laid down in the conduct of the business of the corporation.

Management

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a person who is independent of management and the controlling shareholder, and is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director.

Independent Director

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a director who has executive responsibility of day-to-day operations of a part or the whole of the organization.

Executive Director

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a director who has no executive responsibility and does not perform any work related to the operations of the corporation.

Non Executive Director

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a group of corporations that has diversified business activities in varied industries, whereby the operations of such businesses are controlled and managed by a parent corporate entity.

Conglomerate

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a process designed and effected by the board of directors, senior management, and all levels of personnel to provide reasonable assurance on the achievement of objectives through efficient and effective operations; reliable, complete and timely financial and management information; and compliance with applicable laws, regulations, and the organization’s policies and procedures.

Internal Control

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a process, effected by an entity’s Board of Directors, management and other personnel, applied in strategy setting and across the enterprise that is designed to identify potential events that may affect the entity, manage risks to be within its risk appetite, and provide reasonable assurance regarding the achievement of entity objectives.

Enterprise Risk Management

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shall cover the company’s subsidiaries, as well as affiliates and any party (including their subsidiaries, affiliates and special purpose entities), that the company exerts direct or indirect control over or that exerts direct or indirect control over the company; the company’s directors; officers; shareholders and related interests (DOSRI), and their close family members, as well as corresponding persons in affiliated companies.

Related Party

a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

Related Party Transactions

It should be interpreted broadly to include not only transactions that are entered into with related parties, but also outstanding transactions that are entered into with an unrelated party that subsequently becomes a related party.

Related Party Transactions

any individual, organization or society at large who can either affect and/or be affected by the company’s strategies, policies, business decisions and operations, in general.

Stakeholders

This includes, among others, customers, creditors, employees, suppliers, investors, as well as the government and community in which it operates.

Stakeholders

The Board should be composed of directors with a collective working knowledge, experience or expertise that is relevant to the company’s industry/sector.

Recommendation 1.1

The Board should always ensure that it has an appropriate mix of competence and expertise and that its members remain qualified for their positions individually and collectively, to enable it to fulfill its roles and responsibilities and respond to the needs of the organization based on the evolving business environment and strategic direction.

Recommendation 1.1

T/F A board of directors can effectively oversee management without relevant industry knowledge.

False

T/F The collective expertise of a board is not necessary for formulating a corporation’s strategic objectives.

False

T/F Qualification standards for board members are set to assist in both selection and performance evaluation.

True

A competent board is responsible only for monitoring financial performance, not for overseeing management practices.

False

A competent board is responsible only for monitoring financial performance, not for overseeing management practices.

False

T/F Effective governance includes formulating policies and procedures to guide corporate activities.

True

T/F The vision and mission of a corporation are solely the responsibility of the CEO, not the board.

False

T/F Board members do not need to have any previous experience in the industry relevant to the company.

False

T/F Monitoring management’s performance is a key function of the board of directors.

True

T/F A diverse board can enhance the collective knowledge and experience available to the company.

True

T/F Setting qualification standards for board members is an optional step in the governance process.

False

The Board should be composed of a majority of non-executive directors who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on corporate affairs and to substantiate proper checks and balances.

Recommendation 1.2

T/F A board with a majority of non-executive directors (NEDs) can help prevent decision-making domination by a small group of directors.

True

T/F Independent directors (IDs) are not considered part of the non-executive directors.

False

T/F The qualifications of NEDs are determined solely by individual shareholders.

False

Having a majority of NEDs protects the interests of the company over those of individual shareholders.

True

T/F Executive directors (EDs) are the same as non-executive directors (NEDs).

False

T/F The Company should provide in its Board Charter and Manual on Corporate Governance a policy on the training of directors, including an orientation program for first-time directors and relevant annual continuing training for all directors.

Recommendation 1.3

T/F The orientation program for first-time directors should last at least six hours.

False

T/F All directors are required to undergo annual continuing training.

True

T/F The orientation program includes topics mandated by the SEC.

True

T/F The orientation program is optional for new directors.

False

T/F Annual continuing training should last a minimum of four hours.

True

T/F The orientation program covers the company’s Articles of Incorporation.

True

T/F The orientation program covers the company’s Articles of Incorporation.

True

T/F Continuing training should only focus on corporate governance matters.

False

T/F The training programs should be tailored to meet the company’s and directors' specific needs.

True

T/F Directors are not required to be informed about emerging risks during their training.

False

T/F Effective board performance is the ultimate goal of these training programs.

True

The Board should have a policy on board diversity.

Recommendation 1.4

T/F A board diversity policy aims to promote groupthink.

False

T/F Board diversity includes factors such as age, ethnicity, and culture.

True

T/F Gender diversity is the only focus of a board diversity policy.

False

T/F Increasing the number of female directors is an example of a gender diversity policy.

True

T/F A board diversity policy can enhance optimal decision-making.

True

T/F Diversity in skills and competence is not considered in a board diversity policy.

False

T/F Female independent directors are a specific target in gender diversity initiatives.

True

T/F Female independent directors are a specific target in gender diversity initiatives.

True

T/F A board diversity policy is irrelevant to decision-making processes.

False

T/F The concept of diversity includes knowledge among board members.

True

T/F All boards are required to have a diversity policy.

False

The Board should ensure that it is assisted in its duties by a Corporate Secretary, who should be a separate individual from the Compliance Officer. The Corporate Secretary should not be a member of the Board of Directors and should annually attend a training on corporate governance.

Recommendation 1.5

T/F The Corporate Secretary is primarily responsible to the Chairman of the Company.

False

T/F One of the duties of the Corporate Secretary is to assist in conducting Board meetings.

True

T/F The Corporate Secretary is responsible for preserving the integrity of the minutes of Board meetings.

True

T/F The Corporate Secretary must keep up with relevant laws and regulations.

True

T/F It is the Corporate Secretary's role to advise on the establishment of board committees.

True

T/F It is the Corporate Secretary's role to advise on the establishment of board committees.

True

T/F The Corporate Secretary is required to attend all Board meetings unless justifiable causes prevent them.

True

T/F Performing administrative functions is not part of the Corporate Secretary's responsibilities.

False

T/F The Corporate Secretary drafts the by-laws and ensures they meet regulatory requirements.

True

T/F The Corporate Secretary reports only to the Board Chair.

False

T/F Advising the Board on governance issues is one of the Corporate Secretary's duties.

True

T/F The Corporate Secretary contributes to the flow of information between the Board and stakeholders.

True

T/F The Corporate Secretary is responsible for creating the annual board calendar.

True

T/F The Corporate Secretary is allowed to delegate their responsibilities to other staff members.

False

T/F The Corporate Secretary performs additional duties as specified by the SEC.

True

The Board should ensure that it is assisted in its duties by a Compliance Officer, who should have a rank of Senior Vice President or an equivalent position with adequate stature and authority in the corporation.

Recommendation 1.6

The Compliance Officer should not be a member of the Board of Directors and should annually attend a training on corporate governance.

Recommendation 1.6

T/F The Compliance Officer is primarily liable to the Chairman of the company.

False

T/F One of the Compliance Officer's duties is to ensure proper onboarding of new directors.

True

T/F The Compliance Officer monitors compliance with relevant laws and regulations.

True

T/F The Compliance Officer does not need to report violations to the Board.

False

T/F Ensuring the integrity of documentary submissions to regulators is part of the Compliance Officer's role.

True

T/F The Compliance Officer is required to appear before the SEC if summoned.

True

T/F Collaborating with other departments to address compliance issues is not part of the Compliance Officer's responsibilities.

False

T/F The Compliance Officer identifies possible areas of compliance issues for resolution.

True

T/F Ensuring board members attend relevant trainings is a duty of the Compliance Officer.

True

T/F The Compliance Officer only focuses on compliance issues related to financial matters.

False

T/F The Compliance Officer has no obligations related to the company’s articles of incorporation.

False

T/F Reporting violations and recommending disciplinary actions is part of the Compliance Officer's duties.

True

T/F The Compliance Officer performs additional duties as specified by the SEC.

True

T/F The Compliance Officer is a member of the company’s management team.

True

T/F The Compliance Officer is responsible for internal marketing strategies.

False

The Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and all shareholders.

Recommendation 2.1

T/F Board members have a fiduciary duty that includes the duty of care and the duty of loyalty.

True

T/F Board members have a fiduciary duty that includes the duty of care and the duty of loyalty.

True

T/F The duty of care requires board members to act with minimal effort and diligence.

False

T/F Acting on a fully informed basis is part of the duty of care.

True

T/F The duty of loyalty means prioritizing the interests of the controlling company over the shareholders.

False

T/F Board members must act in good faith as part of their duty of care.

True

T/F The duty of loyalty includes acting in the interest of all shareholders.

True

T/F Due diligence is not a requirement under the duty of care.

False

T/F A board member can prioritize personal interests over those of the company.

False

T/F The duty of loyalty is secondary to the duty of care.

False

T/F Board members must consider all stakeholders when fulfilling their duties.

False

The Board should oversee the development of and approve the company’s business objectives and strategy, and monitor their implementation, in order to sustain the company’s long-term viability and strength.

Recommendation 2.2

T/F The OECD states that the Board should only focus on annual budgets.

False

T/F One of the Board’s responsibilities is to review and guide corporate strategy.

True

T/F Risk management policies and procedures fall under the Board’s oversight.

True

T/F Risk management policies and procedures fall under the Board’s oversight.

True

T/F The Board is responsible for setting performance objectives.

True

T/F Monitoring corporate performance is not part of the Board’s duties.

False

T/F The Board should oversee major capital expenditures, acquisitions, and divestitures.

True

T/F Sound strategic policies help in identifying and prioritizing company goals.

True

T/F The Board is not involved in the implementation of corporate strategies.

False

T/F Proper guidance from the Board can create optimal value for the corporation.

True

T/F The OECD recommends that the Board should only set long-term goals and not annual objectives.

False

The Board should be headed by a competent and qualified Chairperson.

Recommendation 2.3

T/F The Chairman is responsible for focusing meeting agendas on operational details only.

False

T/F The Chairman ensures the Board receives accurate and timely information.

True

T/F Facilitating discussions among Board members is a role of the Chairman.

True

T/F The Chairman does not need to ensure that Management's reports are challenged.

False

T/F Providing orientation for first-time directors is part of the Chairman’s responsibilities.

True

T/F The Board's performance evaluation should occur at least twice a year.

False

T/F The Chairman fosters an environment conducive to constructive debate.

True

T/F The Chairman must consider the overall risk appetite of the corporation.

True

T/F Continuing training opportunities for directors are irrelevant to the Chairman's role.

False

T/F The Chairman has no role in ensuring key governance concerns are discussed.

False

The Board should be responsible for ensuring and adopting an effective succession planning program for directors, key officers and management to ensure growth and a continued increase in the shareholders’ value.

Recommendation 2.4

This should include adopting a policy on the retirement age for directors and key officers as part of management succession and to promote dynamism in the corporation.

Recommendation 2.4

T/F Succession planning aims to transfer leadership to highly competent individuals.

True

T/F The Board is not responsible for the succession planning process.

False

T/F A good succession plan is linked to documented roles and responsibilities.

True

T/F Identifying key knowledge and skills is unnecessary in succession planning.

False

T/F A professional development plan is defined for potential candidates.

True

T/F The succession planning process should be conducted impartially.

True

T/F Succession planning does not need to align with the organization’s strategic direction.

False

T/F Competence and professionalism are key qualities sought in management officers.

True

T/F Cross-experience is not considered in professional development plans.

False

T/F Succession planning is a one-time event rather than an ongoing process.

False

The Board should align the remuneration of key officers and board members with the long-term interests of the company. In doing so, it should formulate and adopt a policy specifying the relationship between remuneration and performance.

Recommendation 2.5

Further, no director should participate in discussions or deliberations involving his own remuneration.

Recommendation 2.5

T/F Sufficient remuneration helps attract and retain qualified individuals.

True

T/F Remuneration policies should disregard the company's risk strategy.

False

T/F Policies promoting a sound risk culture encourage short-term thinking.

False

T/F It is essential for employees to act solely in the interest of their business lines.

False

T/F The Board should formulate a policy linking remuneration to performance.

True

T/F Compensation must be based only on financial metrics

False

T/F Directors should participate in decisions regarding their own remuneration.

False

T/F Remuneration pay-out schedules should consider risk outcomes over several years.

True

T/F Employees in control functions have their remuneration linked to business line performance.

False

T/F Independent remuneration for control functions helps maintain their objectivity.

True

T/F The level of remuneration should reflect the responsibilities of the role.

True

T/F All remuneration policies should be uniform across all employees.

False

T/F Specific provisions should exist for employees who influence the risk profile.

True

T/F The relationship between remuneration and performance should be vague.

False

T/F The goal of remuneration policies is to prevent conflicts of interest.

True

The Board should have and disclose in its Manual on Corporate Governance a formal and transparent board nomination and election policy that should include how it accepts nominations from minority shareholders and reviews nominated candidates.

Recommendation 2.6

The policy should also include an assessment of the effectiveness of the Board’s processes and procedures in the nomination, election, or replacement of a director.

Recommendation 2.6

In addition, its process of identifying the quality of directors should be aligned with the strategic direction of the company.

Recommendation 2.6

T/F Succession planning aims to transfer leadership to highly competent individuals.

True

T/F The Board is not responsible for the succession planning process.

False

T/F The Board is responsible for developing a policy on board nomination.

True

T/F The company’s Manual on Corporate Governance should not include the nomination policy.

False

T/F The policy encourages minority shareholders to participate in nominations.

True

T/F The nomination and election process does not require reviewing the qualifications of nominees.

False

T/F Non-executive directors are not required to have independence of mind.

False

T/F A record of integrity is a consideration for Board candidates.

True

T/F It is good practice to use professional search firms when searching for candidates.

true

T/F Monitoring the qualifications of directors is not part of the nomination process.

False

T/F A person convicted of a crime involving securities can be disqualified from the Board.

True

T/F Being enjoined from certain activities by the SEC can lead to disqualification.

True

T/F Convictions involving moral turpitude do not affect a person's eligibility for the Board.

False

T/F Judicial declaration of insolvency is a ground for disqualification.

True

T/F A conviction by a foreign court for similar misconduct does not affect board eligibility.

False

T/F The grounds for disqualification are outlined in the company’s Manual on Corporate Governance.

True

T/F The SEC has the authority to define additional grounds for disqualification.

True

T/F Temporary disqualification of a director can occur due to excessive absences from meetings.

True

T/F A director is disqualified for missing less than 50% of meetings.

False

T/F Illness or serious accidents can exempt a director from disqualification due to absence.

True

T/F A director terminated for cause from any publicly-listed company faces permanent disqualification.

False

T/F Independent directors with more than 2% ownership in the company are disqualified.

True

T/F The disqualification for exceeding the ownership limit is permanent.

False

T=F A director can be temporarily disqualified if judgments for permanent disqualification are pending.

True

T/F Temporary disqualification applies to all directors regardless of the company type.

True

T/F The grounds for temporary disqualification must be specified in the company's Manual on Corporate Governance.

True

The Board should have the overall responsibility in ensuring that there is a group-wide policy and system governing related party transactions (RPTs) and other unusual or infrequently occurring transactions, particularly those which pass certain thresholds of materiality.

Recommendation 2.7

The policy should include the appropriate review and approval of material or significant RPTs, which guarantee fairness and transparency of the transactions.

Recommendation 2.7

The policy should encompass all entities within the group, taking into account their size, structure, risk profile and complexity of operations.

Recommendation 2.7

T/F Ensuring integrity in related party transactions is a key fiduciary duty of directors.

True

T/F The Board is responsible for preventing abuse in related party transactions.

True

T/F Shareholder ratification of significant RPTs is not required by law.

False

T/F Transactions should be conducted at market prices and on an arm's-length basis.

True

T/F Related party transactions (RPT) policies should exclude whistle-blowing mechanisms.

False

T/F Materiality thresholds can vary based on the company's size and risk profile.

True

T/F The SEC has the authority to adjust a company's materiality threshold.

True

T/F Approval for RPTs is not needed from the Board or shareholders.

False

T/F Interested shareholders should vote on related party transactions.

False

T/F The RPT policy should include guidelines for identifying conflicts of interest.

True

The Board should be primarily responsible for approving the selection and assessing the performance of the Management led by the Chief Executive Officer (CEO), and control functions led by their respective heads (Chief Risk Officer, Chief Compliance Officer, and Chief Audit Executive).

Recommendation 2.8

T/F The Board is responsible for appointing a competent management team at all times.

True

T/F The Board does not need to monitor the performance of the management team.

False

T/F Performance standards must align with the company’s strategic objectives.

True

T/F Fit and proper standards should be applied only to entry-level personnel.

False

T/F Integrity and technical expertise are important considerations in the selection process for key personnel.

True

The Board should establish an effective performance management framework that will ensure that the Management, including the Chief Executive Officer, and personnel’s performance is at par with the standards set by the Board and Senior Management.

Recommendation 2.9

T/F Performance evaluation results should be connected to training and development activities.

True

T/F Remuneration is unrelated to performance evaluation outcomes.

False

T/F Succession planning should consider the results of performance evaluations.

True

T/F The Chief Executive Officer's fitness for duty does not need to be assessed regularly.

False

T/F The assessment of management’s performance includes their ability to carry out their responsibilities.

True

The Board should oversee that an appropriate internal control system is in place, including setting up a mechanism for monitoring and managing potential conflicts of interest of Management, board members, and shareholders.

Recommendation 2.10

The Board should also approve the Internal Audit Charter.

Recommendation 2.10

T/F The Board is responsible for overseeing the implementation of key control functions.

True

T/F Internal control mechanisms should exclude risk management from their scope.

False

T/F Compliance and internal audit are part of the Board’s oversight responsibilities.

True

T/F The Board does not need to review human resource policies.

False

T/F Management succession planning is irrelevant to the Board’s oversight role.

False

The Board should oversee that a sound enterprise risk management (ERM) framework is in place to effectively identify, monitor, assess and manage key business risks.

Recommendation 2.11

The risk management framework should guide the Board in identifying units/business lines and enterprise-level risk exposures, as well as the effectiveness of risk management strategies.

Recommendation 2.11

T/F Risk management policy is integral to a corporation’s corporate strategy.

True

T/F The Board has no responsibility in defining the company’s level of risk tolerance.

False

T/F The Board provides oversight over the corporation's risk management policies.

True

T/F Risk tolerance levels should be determined by the management team alone.

False

T/F The Board's role includes overseeing the implementation of risk management procedures.

True

The Board should have a Board Charter that formalizes and clearly states its roles, responsibilities and accountabilities in carrying out its fiduciary duties.

Recommendation 2.12

The Board Charter should serve as a guide to the directors in the performance of their functions and should be publicly available and posted on the company’s website.

Recommendation 2.12

T/F The Board Charter helps directors understand their functions.

True

T/F Performance evaluation standards for the Board are not included in the Board Charter.

False

T/F The roles and responsibilities of the Chairman are outlined in the Board Charter.

True

T/F The Board Charter is irrelevant to the directors' decision-making processes.

false

T/F A Board Charter is optional for effective governance.

False