Corporate Governance and ESG: An Introduction

Test Code: R34 CGEI Q-Bank

Number of questions: 37

Question Q-Code: L1-CF-CGEI-001 LOS a Section 2

1 Which of the following is the most appropriate definition of corporate governance?

A) A system of defined roles for management and the majority shareholders.

B) A system of checks and balances to minimize the conflicting interests among shareowners.
C) A system of internal controls and procedures by which individual companies are managed.

Question Q-Code: L1-CF-CGEI-002 LOS a Section 2

2 Analyst 1: Corporate governance is the system of internal controls and procedures by which individual companies are managed.
Analyst 2: Corporate governance provides a framework that defines the rights, roles and responsibilities of various groups within an
organization.

Which analyst’s statement is most likely correct?

A) Analyst 1.
B) Analyst 2.
C) Both.

Question Q-Code: L1-CF-CGEI-003 LOS b Section 3

3 Which of the following is least likely a common interest of shareholders and creditors?

A) High profits.
B) High return on invested capital.
C) Dividends.

Question Q-Code: L1-CF-CGEI-004 LOS b Section 3

4 Which of the following scenarios is least likely to create a conflict of interest between shareholders and management?

A) A company's decision to venture into new markets.

B) A takeover bid from a rival firm.
C) A proposal to redraft the employee bonus structure.

Question Q-Code: L1-CF-CGEI-005 LOS b Section 5

5 Which of the following is not a function of the board of directors?

A) To protect shareholder interests and provide strategic direction.

B) To protect the interest of management in front of shareholders.
C) To monitor company and management performance.

Question Q-Code: L1-CF-CGEI-006 LOS b Section 3

6 Which group of stakeholders is least likely to benefit from an increase in the market value of a company?

A) Company management.
B) Customers.
C) Shareholders.

Question Q-Code: L1-CF-CGEI-007 LOS b Section 3

7 Which of the following is least likely an interest of the government as a stakeholder?

A) Higher company profits.

B) Higher management compensation.
C) Environmental impact of the business's activities.

Question Q-Code: L1-CF-CGEI-008 LOS c Section 3

8 An agency relationship is most likely described as:

A) a relationship arising when a principal is hired to act in the best interest of the agent and involves obligations, trust and expectations
of loyalty.
B) a relationship arising when a principal hires an agent to perform particular tasks or services where the agent is expected to act in the
best interests of the principal.
C) a relationship arising when a principal hires an agent to perform particular tasks or services where the agent is expected to act in the
best interests of the stakeholders.

Question Q-Code: L1-CF-CGEI-009 LOS c Section 3

9 The shareholders of a company own a portfolio of several companies and have a high risk tolerance. Such a scenario can create a
 conflict of interest between:

A) shareholders and management.

B) customers and management.
C) creditors and customers.

Question Q-Code: L1-CF-CGEI-010 LOS c Section 3

10 A company is making a takeover bid on a rival firm and the valuators have proposed a bid at a premium of 50% to the target's share
price. The company is currently owned 70% by a majority shareholder and the remaining ownership is fragmented among small
shareholders. The said scenario can result in a conflict between:

A) controlling shareholder and management.

B) shareholders and the government.
C) controlling shareholder and minority shareholders.

Question Q-Code: L1-CF-CGEI-011 LOS d Section 4

11 Stakeholder management is best described as:

A) identifying, prioritizing, and understanding the interests of stakeholder groups, and, on that basis, managing the company’s
relationships with these groups.
B) identifying, prioritizing, and understanding the interests of shareholders and managing shareholder relationships with other
stakeholders.
C) identifying, prioritizing and understanding the interests of stakeholders and serving those interests first that maximize company
profits.

Question Q-Code: L1-CF-CGEI-012 LOS c Section 3

12 Management and board of director's conflicts can arise as a result of:

A) limited information provided to the board.

B) management having an ownership stake in the business.
C) management's decision to invest in a profitable business line

Question Q-Code: L1-CF-CGEI-013 LOS d Section 4

13 Which of the following is not a stakeholder management infrastructure?

A) Legal infrastructure.
B) Environmental infrastructure.
C) Contractual infrastructure.

Question Q-Code: L1-CF-CGEI-014 LOS d Section 4

14 Governance procedures and practices are part of which of the following?

A) Legal infrastructure.
B) Contractual infrastructure.
C) Organizational infrastructure

Question Q-Code: L1-CF-CGEI-015 LOS e Section 4

15 Which of the following is least likely to be done at an extra-ordinary general meeting?

A) Amendments to a company's bylaws.

B) Voting on a merger transaction.
C) Approval of financial statements.

Question Q-Code: L1-CF-CGEI-016 LOS e Section 5

16 Which committee is responsible for a company’s code of ethics and conflict of interest policy?

A) Audit committee.
B) Governance committee.
C) Risk committee.

Question Q-Code: L1-CF-CGEI-017 LOS e Section 4

17 Which of the following is a mechanism to protect the rights of creditors?

A) Proxy voting.
B) Regulations to protect the environment.
C) Collateral to secure a loan.

Question Q-Code: L1-CF-CGEI-018 LOS f Section 5

18 A company wants to incorporate best practices in its corporate governance procedures relating to the company’s compensation
committee. The least appropriate step would be to:

A) include a retired executive from the firm.

B) link compensation with long-term objectives.
 C) include a representative from a different industry.

Question Q-Code: L1-CF-CGEI-019 LOS f Section 5

19 Which of the following committees is most likely responsible for establishing criteria for appointment of board of directors and search
process?

A) Nominations committee.
B) Governance committee.
C) Remuneration committee.

Question Q-Code: L1-CF-CGEI-020 LOS f Section 5

20 Which of the following is not a responsibility of the governance committee?

A) Oversee implementation of the corporate governance code.

B) Ensure compliance with relevant laws and regulations throughout the company.
C) Determining factors that constitute director independence.

Question Q-Code: L1-CF-CGEI-021 LOS f Section 5

21 The risk committee is least likely to:

A) establish enterprise risk management plans.

B) determine the risk appetite of the company.
C) monitor investment in risky projects.

Question Q-Code: L1-CF-CGEI-022 LOS g Section 6

22 Which of the following is a form of shareholder activism?

A) Annual shareholder meetings.

B) Analyst calls.
C) Proposing shareholder resolutions.

Question Q-Code: L1-CF-CGEI-023 LOS g Section 6

23 Persuading shareholders to vote for a group seeking a controlling position in a company is known as a:

A) proxy contest.
B) tender offer.
C) hostile takeover.

Question Q-Code: L1-CF-CGEI-024 LOS h Section 7

24 Which of the following is not a risk of poor corporate governance?

A) High control on all corporate levels.

B) Risk of going bankrupt.
C) Risk of losing employees to competitors.

Question Q-Code: L1-CF-CGEI-025 LOS h Section 7

25 A poor corporate governance structure is most likely to:

A) improve operational freedom and efficiency.

B) reduce corporate governance costs to increase profits.
C) increase the cost of debt.

Question Q-Code: L1-CF-CGEI-026 LOS i Section 8

26 Which of the following can create a divorce between ownership and voting control?

A) A skewed shareholding structure where one shareholder owns majority of the company's shares.
B) Dual class of shares with different voting rights.
C) Equal voting power of all outstanding shares.

Question Q-Code: L1-CF-CGEI-027 LOS i Section 8

27 Which of the following can be a red flag while analyzing corporate governance and stakeholder management of a company?

A) Disclosure of the director's profiles.

B) Disclosure of the director's bonus and compensation structure.
C) Multiple directors engaging in related party transactions with the company.

Question Q-Code: L1-CF-CGEI-028 LOS j Section 9

28 An investment analyst would be most likely concerned about environmental pollution caused by a company because:

A) it would lower costs and increase profits.

B) it would result in environmental degradation.
C) it can result in regulatory action and penalties.
Question Q-Code: L1-CF-CGEI-029 LOS k Section 9

29 Excluding companies from investment universe that violate accepted standards of environmental concerns is an example of:

A) positive screening.
B) best in class.
C) negative screening.

Question Q-Code: L1-CF-CGEI-030 LOS k Section 9

30 Considering a single factor in investment, such as energy efficiency or climate change is known as:

A) best in class.
B) thematic investing.
C) impact investing.

Question Q-Code: L1-CF-CGEI-031 LOS f Section 5

31 The board of directors most likely acts in the best interest of the company and the shareholders when:​

A) the board has the authority to select and terminate senior management.
B) internal directors provide monitoring of the firm’s management.
C) independent board members are selected from outside the industry.

Question Q-Code: L1-CF-CGEI-032 LOS k Section 9

32 Which of the following is least likely a reason for incorporating environmental and societal factors into the investment analysis?​

A) It gives a more comprehensive understanding of a company’s risk.

B) It limits investments to those equities that are consistent with moral or ethical values.
C) It improves investment performance.

Question Q-Code: L1-CF-CGEI-033 LOS f Section 5

33 Following information is provided for a publicly listed company.

The company has a 8-person board of directors.

The board is chaired by the chief executive officer (CEO) of the company.
All members of the audit committee are outside directors with relevant financial and accounting experience.

Which of the following changes will significantly improve the corporate governance of this company?

A) The company’s Vice President of Finance should be a member of the audit committee.
B) The board of directors should have an odd number of directors to preclude tied votes.
C) The chairman of the board should be an independent director.

Question Q-Code: L1-CF-CGEI-034 LOS f Section 5

34 Which of the following is most likely true about the strong corporate code of ethics?​

A) It is signed by employees on voluntary basis.

B) It is updated at least every 10 years.
C) It is developed and implemented by the governance committee.

Question Q-Code: L1-CF-CGEI-035 LOS f Section 9

35 Which of the following committees is most likely to have members from the executive management?​

A) Audit.
B) Environmental, health and safety.
C) Remuneration.

Question Q-Code: L1-CF-CGEI-036 LOS f Section 5

36 Which of the following is most likely true about independent board members. They:​

A) have a lead director when board chair is not independent.

B) hold large portion of equity but have never worked at the company.
C) are pre-approved by the management before being nominated.

Question Q-Code: L1-CF-CGEI-037 LOS g Section 6

37 The shareholder activism is most likely facilitated by:​

A) staggered boards.
B) cross-shareholdings.
C) cumulative voting.