Deck 4: Fundamental Concepts of Corporate Governance

Question 1

Which of the following statements is incorrect?

A)In Australia boards tend to be made up of independent directors with the CEO sitting on the board as managing director.The chairman is normally independent.
B)In Germany companies tend to have dual board structures,where there is a management board that operates within the company and essentially makes the major decisions,as well as a supervisory board that generally comprises fully independent directors who oversee the decisions of the management board.
C)In America boards tend to comprises several outside directors as well as several inside directors including the CEO,who is commonly the chairman of the board
D)In Japan companies tend to have dual board structures,where there is a supervisory board that operates within the company and essentially makes the major decisions,as well as a management board that generally comprises fully independent directors who oversee the decisions of the supervisory board.

Answer 1

D

Question 2

Which of the following statements is incorrect in relation to corporate governance systems?

A)the Anglo-American system is an example of a stakeholder-agency hybrid system;
B)the German system is an example of a stakeholder dominated system;
C)the Australian system follows the Anglo-American approach;
D)the Anglo-American system is an example of an agency dominated system;

Answer 2

A

Question 3

Which of the following statements is correct about non-executive directors?

A)A grey director is a non-executive director who may,at times,experience a conflict of interest because of their positions with other organisations;
B)Non-executive directors must be independent;
C)Listed companies must have at least one non-executive director on their board;
D)Non-executive directors do not have the same powers as executive directors.

Answer 3

A

Question 4

Resource dependence refers to:

A)providing value to all the company's stakeholders;
B)the directors acting to ensure the best interest of the shareholders are being met;
C)corporations providing value by combining the key factors of production in a manner that markets cannot;
D)the directors existing to provide companies with the access to resources that they could not gain through market or management links.

Question 5

Which of the following is not one of the ASX principles of corporate governance?

A)Recognise all interests of all stakeholders;
B)Structure the Board to add value;
C)Encourage enhanced performance;
D)Remunerate fairly and responsibly.

Question 6

Which of the following statement is incorrect?

A)Section 299A of the Corporation Act can be used to compel specific environmental and social disclosures.
B)The Carbon Disclosure Project will result in the mandatory introduction of carbon emission reporting.
C)The National Greenhouse and Energy Reporting System is an example of a scheme encouraging the disclosure of aspects of environmental performance.
D)Sustainability involves ensuring that development meets the needs of the present without compromising the ability of future to meet their own needs.

Question 7

Which of the following is not an example of a hard regulation?

A)Corporations Act;
B)Trade Practices Act;
C)ASX Listing Rules;
D)Accounting standards issued by the Australian Accounting Standards Board.

Question 8

Which of the following is a defence for a breach of trading while insolvent?
I the director had reasonable grounds to expect,and did expect that the company was solvent;
II the director took all reasonable steps to prevent the debt from being incurred;
III the director relied on a subordinate who they believed was competent and reliable and who was responsible for the information;
IV illness prevented the director from taking part in management.

A)I and IV;
B)I,II and III;
C)II,III and IV;
D)I,II,III and IV.

Question 9

Under the Sarbanes-Oxley Act which of the following reforms was introduced in the US:

A)increased disclosures for executive remuneration;
B)whistle blowing protection for all employees and directors;
C)requirements to rotate audit partners every 3 years;
D)the creation of new criminal laws relating to corporate conduct.

Question 10

Which of the following bodies are key regulators of Australian businesses?
I Australian Prudential Regulatory Authority;
II Australian Competition and Consumer Commission;
III Australian Securities Exchange;
IV Australian Securities and Investments Commission.

A)I and IV;
B)I,II and III;
C)II,III and IV;
D)I,II,III and IV.

Question 11

Which of the following statements is not correct in relation to continuous disclosure?

A)ASX Listing Rules require that a company immediately notify the ASX of any information concerning the entity of which it is or becomes aware and which a reasonable person would expect to have a material effect on the price or value of securities of the firm.
B)If information is confidential (i.e.not known outside the company),then a company may choose not to disclose if a reasonable person would not think it necessary to disclose and the information is insufficiently clear or a trade secret,subject to incomplete proposals or negotiations.
C)Continuous disclosure is the specific requirement of listed entities under ASX Listing Rule.There is no legislative force to the requirements.
D)Auditors play a crucial role in disclosure,because they have an obligation to report to the members through an auditor's report.

Question 12

Under the CLEPR 9 reforms relating to the conduct of auditors audit partners of listed companies must rotate off the audit after a period of:

A)2 years;
B)3 years;
C)5 years;
D)7 years.

Question 13

How many principles are contained within the ASX principles of corporate governance?

A)7 principles
B)8 principles
C)10 principles
D)12 principles

Question 14

Under the CLERP 9 reforms relating to the conduct of auditors former auditors are prohibited from employment in or directorships of their former clients for a period of:

A)3 months;
B)1 year;
C)2 years;
D)5 years.

Question 15

The court decision that places a greater responsibility on the role of the chairman is:

A)Aberdeen Railway Co v.Blaikie Bros;
B)Whitehouse v.Carlton Hotels Ltd;
C)ASIC v.Adler;
D)ASIC v.Rich & Ors.

Question 16

The demise of ABC Learning Ltd was caused by:
I failed international strategy;
II poor acquisition strategy;
III failure to maintain the fundamentals of the business;
IV fraud and embezzlement.

A)I and IV;
B)I,II and III;
C)II,III and IV;
D)I,II,III and IV.

Question 17

The ASX Corporate Governance Principles and Recommendations are an example of:

A)Black-letter law;
B)Soft regulation;
C)Business code of ethics.
D)Hybrid regulation;

Question 18

Stakeholder theory refers to:

A)providing value to all the company's stakeholders;
B)the directors acting to ensure the best interest of the shareholders are being met;
C)corporations providing value by combining the key factors of production in a manner that markets cannot;
D)the directors existing to provide companies with the access to resources that they could not gain through market or management links.

Question 19

Which of the following is not a warning signal that should raise concern with directors and officers in relation to the solvency of the company?

A)inability to raise further equity capital;
B)creditors payment times shortening;
C)COD terms from suppliers;
D)post dated cheques.

Question 20

In relation to assessing the independence of non-executive directors,which of the following is not a requirement in the ASX Corporate Governance Council's independence test?
I is not a substantial shareholder;
II is not a material supplier or customer of the company;
III is free from any interest in any business that could be perceived to materially interfere with the director's ability to act in the best interests of the company;
IV has not previously been employed in an executive capacity by the company.

A)I and IV;
B)I,II and III;
C)II,III and IV;
D)I,II,III and IV.

Question 21

Discuss the reforms introduced into the US as a result of the Sarbanes-Oxley Act.

Question 22

Outline the four key duties for directors and officers as laid out in the Corporations Act.

Question 23

Outline the agency theory of corporate governance.

Question 24

Discuss the reforms introduced into Australia as a result of CLERP 9.

Question 25

Explain what corporate governance is: