CBA Corporate Governance Principles 2 — Questions and Answers
Question 1: Which committee is primarily responsible for overseeing a bank's financial reporting and internal controls?
- Risk Committee
- Audit Committee (Correct answer)
- Compensation Committee
- Nominations Committee
Correct answer: Audit Committee
The Audit Committee is responsible for overseeing financial reporting integrity, internal controls, and external auditor relationships.
Question 2: Under the Basel Committee's corporate governance principles, the board of directors is responsible for:
- Day-to-day operational management
- Approving all individual loan decisions
- Setting the bank's risk appetite and overseeing senior management (Correct answer)
- Conducting internal audits independently
Correct answer: Setting the bank's risk appetite and overseeing senior management
The Basel Committee assigns the board responsibility for setting risk appetite and providing effective oversight of senior management.
Question 3: What is 'say-on-pay' in the context of bank corporate governance?
- The CEO's authority to set compensation for direct reports
- A shareholder vote on executive compensation packages (Correct answer)
- A regulator's right to cap banker bonuses
- The board's power to approve compensation plans
Correct answer: A shareholder vote on executive compensation packages
Say-on-pay gives shareholders an advisory or binding vote on executive compensation, enhancing board accountability.
Question 4: A bank's whistleblower policy is best described as a governance mechanism that:
- Penalizes employees who report issues to regulators
- Provides channels for reporting misconduct without fear of retaliation (Correct answer)
- Limits disclosures to only the CEO and CFO
- Requires all complaints to go through the legal department first
Correct answer: Provides channels for reporting misconduct without fear of retaliation
Effective whistleblower policies establish safe, confidential channels for reporting misconduct, a key element of a sound governance culture.
Question 5: Which of the following best describes a 'staggered board' structure?
- All directors are elected every year at the annual meeting
- Only a fraction of board seats are up for election each year (Correct answer)
- Directors are appointed exclusively by regulators
- The board rotates leadership among its members monthly
Correct answer: Only a fraction of board seats are up for election each year
A staggered board divides directors into classes elected in different years, providing continuity but potentially entrenching existing directors.
Question 6: When a bank's external auditor is also providing significant consulting services, this raises a concern about:
- Regulatory capital adequacy
- Auditor independence and objectivity (Correct answer)
- Dividend payout ratios
- The bank's liquidity coverage ratio
Correct answer: Auditor independence and objectivity
Providing consulting services alongside audit work creates a financial dependency that can compromise the auditor's independence.
Question 7: The principle of 'tone at the top' in bank governance refers to:
- The volume level of board meetings
- Senior leadership's demonstrated commitment to ethical standards and compliance (Correct answer)
- Marketing messages directed at top-tier customers
- Capital buffers held above regulatory minimums
Correct answer: Senior leadership's demonstrated commitment to ethical standards and compliance
Tone at the top describes how senior leaders' behaviors and values shape the overall ethical culture and compliance environment of the institution.
CBA Corporate Governance Principles 2
Which committee is primarily responsible for overseeing a bank's financial reporting and internal controls?