Corporate Governance quiz

Stakeholder theory focuses on the conflicts of interest among owners and several groups that have an interest in a company’s activities, including creditors .

While leverage increases risk for all stakeholders, shareholders generally benefit through higher potential returns. Senior management typically benefits through equity-based compensation. For non-management employees, equity-based compensation is likely to be small to non-existent .

Positive screening does not exclude any sectors but seeks to invest in the companies with the best practices. Negative screening typically excludes some sectors. Thematic investing refers to making an investment in a company or project in order to advance specific social or environmental goals.

With cumulative voting, shareholders get a vote for each share they own times the number of director elections each year and can give all their votes to a single candidate for the board. This helps minority stockholders to get more proportional representation on the board of directors .

Responsible investing is the broadest (umbrella) term used to describe investment strategies that incorporate environmental, social, and governance (ESG) factors into their approaches .

The primary motivation of activist shareholders is to increase shareholder value. If they feel management or the board has failed to act in the best interests of shareholders, they may attempt to force changes by gaining control of the board.

(environmentally sustainable business practices) is incorrect. This is more likely to be a goal of ESG investors with an investment mandate focused on environmental factors.

(consideration of human rights in employee relations)is incorrect. This is more likely to be a goal of ESG investors with an investing mandate focused on social factors.

Social factors considered in ESG implementation generally pertain to the management of the human capital of a business, including data privacy and security.

The investment committee reviews proposals for large acquisitions or projects and also monitors the performance of acquired assets and of projects requiring large capital expenditures .

Reduced risk of default is among the benefits of effective corporate governance. Risks from poor corporate governance include related party transactions by managers and opportunities for some stakeholder groups to gain advantage at the expense of others .

Corporate governance is the arrangement of checks, balances, and incentives a company needs to minimize and manage the conflicting interests between insiders and external shareholders.

Negative screening refers to the practice of excluding certain sectors, companies, or practices that do not meet specific ESG criteria based on the investor’s values, ethics, or preferences .

A common law system offers better protection of shareholder interests than does a civil law system .

Management is most likely to present the proposed sale to the investment committee, whose main role is to review the viability of material investment opportunities proposed by management.

(Risk) is incorrect. Assessing proposed investment or divestment opportunities is the primary role of the investment committee, not the risk committee. The risk committee assists the board in determining the risk policy, profile, and appetite of the company.

(Audit) is incorrect. Assessing proposed investment or divestment opportunities is the primary role of the investment committee, not the audit committee.

The objective of a value-based ESG approach is to mitigate risks and identify opportunities by analyzing ESG considerations in addition to traditional finance metrics. Avoidance of companies that conflict with moral or ethical values reflects a value-based approach.

(Reduction in risks associated with increased litigation costs) and (Increase in risk-adjusted returns through ESG factor ranking ) are incorrect. The objective of a value-based ESG approach is to mitigate risks and identify opportunities by analyzing ESG considerations in addition to traditional finance metrics.

Compared with other stakeholder groups, customers tend to be less affected by or concerned with a company’s financial performance .

The risks of poor corporate governance have long been understood by analysts and shareholders. In contrast, the practice of considering environmental and social factors has been slower to take hold .

The election of directors is considered an ordinary resolution and, therefore, requires only a simple majority of votes to be passed .

The ability to manage the conflicting interests of company relations with stakeholders requires good communication with stakeholders and a good understanding of their various interests .

Shareholder and manager interests can diverge with respect to risk tolerance. In some cases, shareholders with diversified investment portfolios can have a fairly high risk tolerances because specific company risk can be diversified away. Managers are typically more risk averse in their corporate decision making to better protect their employment status .

Ordinary resolutions, such as those to appoint an auditor or elect a board member, require a simple majority. Acquisitions, mergers, takeovers, and amendments to the company bylaws often require a supermajority of more than 50% for passage .