Unit 13: Corporate Governance - Practice Quiz

1 What is a value-based corporate culture?

2 Which action best supports an ethical corporate culture?

3 What does corporate disclosure involve?

4 In corporate governance, what does transparency mean?

5 Corporate accountability means that decision-makers must:

6 How can human resource management support corporate governance?

7 Which HR practice most directly promotes ethical employee behavior?

8 What is the main purpose of evaluating a board of directors?

9 Which factor is commonly considered in a board performance evaluation?

10 What is succession planning?

11 What is a major benefit of succession planning?

12 What is a Public Sector Undertaking (PSU)?

13 Why is accountability especially important in a PSU?

14 What is insider trading?

15 Which information is most likely to be considered material non-public information?

16 Why is insider trading prohibited?

17 Which governance weakness commonly contributes to corporate failure?

18 What is a key lesson from major corporate failures?

19 How can independent directors help prevent corporate failure?

20 Which document commonly provides shareholders with financial information about a company?

21 A company publicly emphasizes integrity, but managers receive bonuses based solely on quarterly sales. Employees consequently record sales before contracts are finalized. Which governance reform would best align behavior with the stated culture?

22 Employee surveys show that staff recognize misconduct but avoid reporting it because senior managers react defensively. Which action would most effectively strengthen a value-based culture?

23 A company faces a lawsuit that could materially affect its financial position, but the final amount cannot yet be estimated reliably. What is the most appropriate disclosure response?

24 A company changes its inventory valuation method and reports higher profit without explaining the change. Which quality of disclosure is most directly weakened?

25 Management refuses to provide the audit committee with details of several related-party transactions. Which governance principle is most directly compromised?

26 A bank's executives earn large bonuses when loans are issued, even if those loans later default. Which HR policy would best address the resulting governance risk?

27 A high-performing manager repeatedly violates workplace policies, but HR takes no action because the manager generates substantial revenue. What is the greatest governance concern?

28 A board's annual self-evaluation consistently rates every director as excellent, despite repeated regulatory violations. What would most improve the credibility of the next evaluation?

29 A director attends every meeting but rarely reviews papers, challenges assumptions, or contributes relevant expertise. Which evaluation approach would best identify this weakness?

30 A chief executive resigns unexpectedly, and the company has no identified temporary replacement. Which succession measure would have reduced the immediate disruption most effectively?

31 A board considers only one long-serving executive whenever a senior leadership position becomes vacant. Which change would make succession planning more robust?

32 A public sector undertaking is instructed to maintain unprofitable services for social reasons. How should its board best promote accountability?

33 A ministry directs a public sector undertaking to award a major contract to a politically connected supplier without competitive review. What should the board do first?

34 A finance manager learns that the company will announce an unexpectedly large loss next week. Before the announcement, the manager sells company shares. Why is this likely insider trading?

35 An executive confidentially tells a friend about an imminent takeover. The friend understands that the information is confidential and purchases shares. Which statement is most accurate?

36 A company's trading window is open, but a director possesses confidential information about a major contract cancellation. What is the appropriate action?

37 A rapidly growing company reports rising profits while operating cash flow declines for three consecutive years. Which board response is most appropriate?

38 A board approves a complex acquisition after receiving the proposal one day before the meeting and relying entirely on optimistic management forecasts. Which lesson from corporate failures is most relevant?

39 A company announces a carbon-reduction target but reports neither its baseline emissions nor annual progress. What would most improve accountability?

40 The board of a public sector undertaking consists mainly of government officials who oversee the entity's sector and approve its policies. Which reform would best reduce governance conflicts?

41 A company publicly emphasizes customer welfare but rewards regional managers solely for quarterly sales growth. Managers respond by selling unsuitable products while remaining within narrowly drafted policies. Which governance reform most directly addresses the underlying cultural failure?

42 Following an acquisition, the buyer imposes its code of ethics on the target. Misconduct nevertheless rises because target employees perceive that senior buyer executives receive exceptions. Which indicator would best reveal whether values have actually been embedded?

43 A manufacturer discloses that supply-chain disruption is a material risk. Before publication, its only supplier for a critical component permanently closes, but management leaves the disclosure phrased as a hypothetical risk. What is the central governance defect?

44 A conglomerate reports strong consolidated margins while combining a rapidly deteriorating regulated segment with a profitable unregulated segment. Both segments are individually material. Which response most improves decision-useful transparency?

45 Management selects a nonstandard performance measure that excludes recurring restructuring costs and causes bonuses to vest. The exclusions are clearly reconciled to audited profit. What additional governance response is most important?

46 A bank's deferred bonuses depend on loan volume, while credit losses typically emerge three years after origination. Which compensation design best aligns human-resource policy with sound governance?

47 The chief human resources officer investigates complaints against the CEO but depends on the CEO for appointment, compensation, and continued employment. Which arrangement best mitigates the resulting governance conflict?

48 A board receives high annual evaluation scores, but interviews reveal that directors rarely challenge the founder-CEO. The questionnaire is administered by the company secretary, whose career is controlled by the CEO. Which change would most improve diagnostic reliability?

49 A board collectively has expertise in finance, technology, and regulation, yet a cyber crisis exposes poor information sharing and unclear committee boundaries. What should the next evaluation emphasize?

50 An evaluation finds that one director repeatedly arrives unprepared, but the board's average effectiveness score remains high. Which follow-up is most appropriate?

51 A CEO becomes incapacitated during negotiations for a transformative acquisition. The designated emergency successor can stabilize operations but lacks acquisition experience, while the leading permanent candidate is unavailable for two months. What should the board do?

52 A board names one internal executive as the CEO's heir apparent five years before expected retirement. Development resources and strategic exposure then flow almost exclusively to that person. What is the most significant governance risk?

53 A public sector undertaking is instructed to keep prices below cost to achieve a social objective, while its board is assessed solely on profitability. Which governance arrangement best resolves the accountability problem?

54 A ministry appoints directors to a state-controlled company, regulates its industry, purchases most of its output, and evaluates its dividends. Which reform most directly addresses this multiple-principal conflict?

55 The board of a profitable public sector undertaking cannot appoint senior executives or approve capital expenditure without ad hoc ministerial consent. The ministry nevertheless holds the board responsible for execution delays. Which principle is being violated?

56 Under a regime recognizing the mosaic theory, an analyst combines public shipment data, nonmaterial comments from suppliers, and industry statistics to predict an issuer's earnings surprise. No source communicates material nonpublic information. Which conclusion is strongest?

57 A director adopts a predetermined trading plan while aware of confidential merger negotiations. The plan begins selling shares one week later and gives the director no later discretion. Under a rule requiring plans to be adopted in good faith while not aware of material nonpublic information, what is the key result?

58 An employee tells a sibling about an undisclosed tender offer, expecting the sibling to trade and share the gains. The sibling knows the information was disclosed in breach of the employee's duty and purchases shares. Which feature most strongly supports tipper-tippee liability?

59 A company reports rising earnings and positive operating cash flow, but days sales outstanding, supplier-financing balances, and related-party receivables all increase sharply. Which board response best reflects lessons from accounting-related corporate failures?

60 After repeated near misses at an industrial company, management argues that existing controls are effective because no catastrophic loss has occurred. Which governance lesson most directly challenges that conclusion?