Topic 2 - Corporate Governance

Question 1

What is corporate governance?

Answer 1

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.

Example sentence: The board of directors plays a crucial role in corporate governance.

Question 2

What is the main goal of corporate governance?

Answer 2

To ensure that a company acts in the best interests of its shareholders and stakeholders.

Additional information: Corporate governance aims to balance the interests of various stakeholders.

Question 3

What is the role of the board of directors in corporate governance?

Answer 3

The board of directors oversees management and ensures the company is operating in the shareholders’ best interests.

Example sentence: The board of directors is responsible for approving major strategic decisions.

Question 4

What is the primary responsibility of shareholders in corporate governance?

Answer 4

Shareholders provide capital and have the right to vote on significant matters, such as electing board members.

Example sentence: Shareholders can exercise their voting rights at annual general meetings.

Question 5

What is an independent director?

Answer 5

An independent director is a board member who does not have a material relationship with the company and can provide unbiased oversight.

Example sentence: Independent directors are essential for ensuring transparency and accountability.

Question 6

What is the agency problem in corporate governance?

Answer 6

The agency problem arises when managers act in their own interests rather than in the interests of shareholders.

Example sentence: Addressing the agency problem requires aligning the incentives of managers with those of shareholders.

Question 7

What is executive compensation?

Answer 7

Executive compensation includes salary, bonuses, stock options, and other incentives given to top executives to align their interests with those of shareholders.

Example sentence: Executive compensation packages are designed to attract and retain top talent.

Question 8

What are fiduciary duties in corporate governance?

Answer 8

Fiduciary duties include the obligation of directors and officers to act in good faith, with care, and in the best interests of the company and its shareholders.

Example sentence: Breach of fiduciary duties can result in legal consequences for directors and officers.

Question 9

What is the purpose of a shareholder meeting?

Answer 9

A shareholder meeting allows shareholders to vote on key issues such as board elections, mergers, and executive compensation.

Example sentence: Shareholder meetings are an opportunity for investors to engage with company management.

Question 10

What is a proxy vote?

Answer 10

A proxy vote is a vote cast by one person on behalf of a shareholder who is unable to attend the shareholder meeting.

Example sentence: Proxy votes are commonly used in large publicly traded companies.

Question 11

What are the key elements of good corporate governance?

Answer 11

Accountability, transparency, fairness, and responsibility.

Example sentence: Good corporate governance practices enhance trust and confidence among stakeholders.

Question 12

What is corporate social responsibility (CSR) in governance?

Answer 12

CSR refers to a company’s efforts to operate in a socially responsible manner, balancing profit with societal and environmental concerns.

Example sentence: CSR initiatives can contribute to long-term sustainable growth.

Question 13

What is the role of audit committees in corporate governance?

Answer 13

Audit committees oversee financial reporting, ensure the integrity of financial statements, and liaise with external auditors.

Example sentence: Audit committees play a critical role in ensuring financial transparency and accuracy.

Question 14

What is the role of a risk management committee?

Answer 14

The risk management committee identifies, monitors, and mitigates risks that could affect the company’s performance or reputation.

Example sentence: Effective risk management is essential for safeguarding shareholder value.

Question 15

What is the role of a nomination committee?

Answer 15

The nomination committee is responsible for identifying and recommending candidates for the board of directors.

Example sentence: Nomination committees help ensure that the board comprises qualified individuals.

Question 16

What is the role of a compensation committee?

Answer 16

The compensation committee oversees executive pay and ensures that compensation aligns with company performance and shareholder interests.

Example sentence: Compensation committees play a key role in linking pay to performance.

Question 17

What is dual-class share structure?

Answer 17

A dual-class share structure gives different voting rights to different classes of shares, often allowing founders or insiders to retain control.

Example sentence: Dual-class share structures can raise concerns about unequal voting power.

Question 18

What is a poison pill strategy?

Answer 18

A poison pill is a defensive strategy used by a company to thwart hostile takeovers by making the company less attractive to the acquirer.

Example sentence: Poison pills are designed to protect shareholder interests.

Question 19

What is shareholder activism?

Answer 19

Shareholder activism occurs when shareholders attempt to influence company management and decision-making, often to improve financial performance.

Example sentence: Shareholder activism can lead to changes in corporate strategy and governance.

Question 20

What is a hostile takeover?

Answer 20

A hostile takeover is an acquisition attempt by an external party that is opposed by the company’s management and board of directors.

Example sentence: Hostile takeovers can result in significant changes in company ownership and control.

Question 21

What is a stewardship code?

Answer 21

A stewardship code is a set of principles guiding institutional investors on how to engage with and hold companies accountable for good governance.

Example sentence: Stewardship codes promote responsible investment practices.

Question 22

What is a shareholder resolution?

Answer 22

A shareholder resolution is a proposal made by shareholders that is voted on at the company’s annual general meeting.

Example sentence: Shareholder resolutions can address various governance and strategic issues.

Question 23

What is the difference between shareholders and stakeholders?

Answer 23

Shareholders own shares in the company, while stakeholders are anyone affected by the company’s actions, including employees, customers, and the community.

Example sentence: Stakeholders have a broader interest in the company beyond financial returns.

Question 24

What is transparency in corporate governance?

Answer 24

Transparency refers to the availability of accurate and timely information to shareholders and stakeholders about the company’s operations and financial performance.

Example sentence: Transparency is essential for building trust and credibility with stakeholders.

Question 25

What is the separation of ownership and control?

Answer 25

The separation of ownership and control refers to the division between shareholders (owners) and managers (controllers) of a company.

Example sentence: The separation of ownership and control can lead to agency conflicts.

Question 26

What are internal controls in corporate governance?

Answer 26

Internal controls are procedures and policies put in place to ensure the accuracy of financial reporting and compliance with laws and regulations.

Example sentence: Strong internal controls help prevent fraud and errors in financial reporting.

Question 27

What is the role of external auditors in corporate governance?

Answer 27

External auditors independently review the company’s financial statements to ensure accuracy and compliance with accounting standards.

Example sentence: External auditors provide an independent assessment of a company’s financial health.

Question 28

What is corporate accountability?

Answer 28

Corporate accountability means that a company is responsible for its actions and must answer to its stakeholders.

Example sentence: Corporate accountability requires transparency and ethical behavior.

Question 29

What is ethical leadership in corporate governance?

Answer 29

Ethical leadership involves company leaders acting in a way that is consistent with moral values, integrity, and fairness.

Example sentence: Ethical leadership sets the tone for ethical behavior throughout the organization.

Question 30

What are minority shareholder rights?

Answer 30

Minority shareholder rights protect shareholders with a smaller ownership stake from unfair treatment by majority shareholders or management.

Example sentence: Minority shareholder rights ensure equitable treatment for all investors.

Question 31

What is the role of corporate governance codes?

Answer 31

Corporate governance codes provide guidelines for best practices in governance to ensure accountability, fairness, and transparency.

Example sentence: Corporate governance codes help companies establish effective governance structures.

Question 32

What is the role of institutional investors in corporate governance?

Answer 32

Institutional investors, such as pension funds and mutual funds, can influence corporate governance through voting and engagement with management.

Example sentence: Institutional investors play a key role in shaping corporate governance practices.

Question 33

What is a governance rating?

Answer 33

A governance rating assesses the quality of a company’s corporate governance practices, often used by investors to evaluate potential investments.

Example sentence: Governance ratings help investors assess the risk associated with a particular company.

Question 34

What is a corporate governance framework?

Answer 34

A corporate governance framework is the structure through which the company’s objectives are set, and the means of attaining those objectives are monitored.

Example sentence: A robust corporate governance framework is essential for ensuring effective oversight and management.

Question 35

What is board diversity in corporate governance?

Answer 35

Board diversity refers to having a range of backgrounds, perspectives, and experiences represented on the board of directors.

Example sentence: Board diversity enhances decision-making and governance effectiveness.

Question 36

What is a golden parachute?

Answer 36

A golden parachute is a large severance package provided to executives if they lose their job due to a

Example sentence: Golden parachutes are controversial due to their perceived excessive payouts.

Question 37

What is a corporate governance framework?

Answer 37

A corporate governance framework is the structure through which the company’s objectives are set, and the means of attaining those objectives are monitored.

Example sentence: The board of directors plays a key role in establishing and maintaining the corporate governance framework.

Question 38

What is board diversity in corporate governance?

Answer 38

Board diversity refers to having a range of backgrounds, perspectives, and experiences represented on the board of directors.

Additional information: Board diversity is seen as beneficial for decision-making and overall governance effectiveness.

Question 39

What is a golden parachute?

Answer 39

A golden parachute is a large severance package provided to executives if they lose their job due to a takeover or merger.

Example sentence: The CEO negotiated a generous golden parachute in his employment contract.

Question 40

What is Say on Pay?

Answer 40

Say on Pay is a policy that gives shareholders the right to vote on executive compensation packages.

Example sentence: Shareholders exercised their Say on Pay rights to express concerns about excessive executive salaries.

Question 41

What is the role of the CEO in corporate governance?

Answer 41

The CEO is responsible for managing the company’s operations and implementing board policies.

Additional information: The CEO is accountable to the board of directors and shareholders for the company’s performance.

Question 42

What is shareholder democracy?

Answer 42

Shareholder democracy refers to the rights of shareholders to vote on important corporate matters, influencing the company’s direction.

Example sentence: The annual meeting is a key opportunity for shareholder democracy to be exercised.

Question 43

What is a governance risk?

Answer 43

Governance risk is the potential for poor corporate governance practices to negatively impact a company’s performance and reputation.

Additional information: Governance risk can lead to legal issues and loss of investor confidence.

Question 44

What is a staggered board?

Answer 44

A staggered board is a structure in which only a portion of the board of directors is elected each year, making hostile takeovers more difficult.

Example sentence: The staggered board’s rotation schedule ensures continuity in leadership.

Question 45

What is insider trading?

Answer 45

Insider trading occurs when individuals with access to non-public information about a company trade its stock to gain a financial advantage.

Example sentence: The SEC investigates cases of suspected insider trading to maintain market integrity.

Question 46

What is the business judgment rule?

Answer 46

The business judgment rule protects directors from liability if they make decisions in good faith and in the best interests of the company.

Additional information: Courts typically defer to the business judgment rule when evaluating directorial decisions.

Question 47

What is cumulative voting?

Answer 47

Cumulative voting allows shareholders to allocate their votes to one or more candidates, helping minority shareholders influence board elections.

Example sentence: Cumulative voting can give smaller shareholders a stronger voice in the selection of directors.

Question 48

What is the role of corporate bylaws?

Answer 48

Corporate bylaws define the rules governing the internal management of a company, including the roles of directors and officers.

Example sentence: The board approved amendments to the corporate bylaws to enhance governance practices.

Question 49

What is an ESG score?

Answer 49

An ESG score measures a company’s performance in environmental, social, and governance aspects, used by investors to assess sustainability.

Additional information: ESG scores are becoming increasingly important for socially responsible investing.

Question 50

What is a clawback provision?

Answer 50

A clawback provision allows a company to reclaim executive compensation if it was based on incorrect financial information or misconduct.

Example sentence: The board invoked the clawback provision due to the CEO’s involvement in a financial scandal.

Question 51

What is the role of whistleblower policies in governance?

Answer 51

Whistleblower policies protect individuals who report unethical or illegal activities within the company from retaliation.

Example sentence: The company’s strong whistleblower policies encourage employees to speak up about misconduct.

Question 52

What is a shareholder derivative suit?

Answer 52

A shareholder derivative suit is a legal action brought by shareholders on behalf of the company against insiders, such as directors or executives, for breach of fiduciary duty.

Additional information: Shareholder derivative suits aim to hold company insiders accountable for actions that harm the company and shareholders.

Question 53

What is a governance audit?

Answer 53

A governance audit evaluates a company’s governance practices to ensure they align with legal requirements and best practices.

Example sentence: The external auditor conducted a thorough governance audit to identify areas for improvement.