RCC RCC Corporate Governance and Board Oversight 1 — Questions and Answers
Question 1: What is the primary responsibility of a company's board of directors with respect to compliance?
- To manage day-to-day compliance operations
- To provide oversight and ensure that management establishes and maintains an effective compliance program (Correct answer)
- To conduct internal compliance audits
- To interact directly with regulators on all enforcement matters
Correct answer: To provide oversight and ensure that management establishes and maintains an effective compliance program
The board's role is oversight — ensuring that senior management has built an effective compliance infrastructure, not performing the compliance work itself.
Question 2: The Sarbanes-Oxley Act (SOX) Section 302 requires public company executives to:
- Publish all internal audit reports publicly
- Personally certify the accuracy of financial reports and the effectiveness of internal controls (Correct answer)
- Obtain CPA certification before signing financial statements
- File compliance certifications with the FTC
Correct answer: Personally certify the accuracy of financial reports and the effectiveness of internal controls
SOX Section 302 requires the CEO and CFO to personally certify that financial statements are accurate and that they have evaluated and disclosed the effectiveness of internal controls.
Question 3: Director independence on a corporate board PRIMARILY serves to:
- Reduce the number of board members needed
- Provide objective oversight free from conflicts of interest with management (Correct answer)
- Lower the cost of board compensation
- Satisfy marketing requirements for investor relations
Correct answer: Provide objective oversight free from conflicts of interest with management
Independent directors are free from material relationships with the company that could impair their judgment, enabling objective oversight of management and compliance with governance standards.
Question 4: Which governance document MOST directly establishes the duties and powers of a corporation's board of directors?
- The employee handbook
- The corporate charter and bylaws (Correct answer)
- The annual report to shareholders
- The external auditor's engagement letter
Correct answer: The corporate charter and bylaws
A corporation's charter (articles of incorporation) and bylaws are foundational governance documents that establish board composition, authority, meeting requirements, and committee structures.
Question 5: The 'business judgment rule' in US corporate law PRIMARILY protects directors from liability when they:
- Make decisions that maximize short-term stock price
- Make informed, good-faith decisions within their authority without personal interest in the outcome (Correct answer)
- Follow management's recommendations without independent review
- Approve all transactions regardless of risk
Correct answer: Make informed, good-faith decisions within their authority without personal interest in the outcome
The business judgment rule shields directors from liability for business decisions that were made in good faith, with due care, and in the honest belief they were acting in the best interests of the company.
Question 6: What does a 'fiduciary duty' mean for corporate officers and directors?
- A financial requirement to fund the company's pension plan
- An obligation to act in the best interests of shareholders and the corporation, not for personal benefit (Correct answer)
- A duty to maximize executive compensation packages
- A legal requirement to disclose all trade secrets
Correct answer: An obligation to act in the best interests of shareholders and the corporation, not for personal benefit
Fiduciary duties — including the duty of care and duty of loyalty — require directors and officers to act in the best interests of the corporation and its shareholders rather than their own personal interests.
RCC RCC Corporate Governance and Board Oversight 1
What is the primary responsibility of a company's board of directors with respect to compliance?