1. A firm’s Board has nominated you as a candidate for the Board.

You could be considered an

independent Board member. Assuming you are as qualified as all of the other potential or existing
Board members, you would most likely be a good candidate for the Board if you had the additional
qualification of

A. being a major supplier of the firm

B. having made public statements illuminating an ethical perspective about corporate governance

C. never having served on other boards

D. None

2. Board Members owe a duty to make decisions based on what ultimately is best for the long-term
interests of Shareowners. In order to do this effectively, Board membership and structure should be
characterized by each of the following except:

A. A set of internal mechanisms to support the Independent work of the Board, including the
authority to hire outside consultants without management’s intervention or approval

B. A majority of Board Members who have appropriate experience and expertise relevant to the
company’s business and are best able to evaluate what is in the best interests of shareowners,
whether or not the members are also a part of the company management team

C. Board Members should bring with them a commitment to take an unbiased approach in making
decisions that will benefit the company and long-term shareowners, rather than simply voting with
management.

D. None

3. Cindy Wilhelm, CFA, analyzes corporate governance issues for the research department of her buy-
side firm. Which of the following practices conflicts with a Board’s ability to act in the best long-term
interests of shareowners?

A. Board members require executive management approval prior to hiring consultants

B. Independent board members have no allegiance to firm management

C. The independent board members are selected from the national business community rather than
locally

D. None

4. Which of the following board members would most likely be considered to be well chosen based on
the principles of good corporate governance?

A. A board member of Company A who is president of Company B, when the CFO of Company A sits
on Company B’s board.

B. A board member of Company B who is a partner in an accounting firm that competes with the
firm’s auditor.

C. A board member of Company B who is also the CEO of Company B.

D. A board member of Company B who is an ex-employee of Company B.

5. McCool and Company is a consulting firm that provides research reports on corporate governance
at large corporations and whether corporate governance systems are consistent with global best
practices. McCool recently completed an evaluation of ARC Industries and listed the following
observations a) 6 of the 10 directors for ARC Industries are former employees or executives of the
firm; b) Each board member is up for reelection to the board on an annual basis; c) The nominating
committee consists of 3 independent directors and the CEO of ARC Industries; d) The compensation
committee consists of 5 independent directors; e) All audit committee members are independent and
have a background in finance or accounting. How many of these items are consistent with good
corporate governance practices?

A. 2

B. 3

C. 4

D. 5

6. All of the following are attributes of an effective corporate governance system except

A. appropriate controls are in place covering management’s activities in running the day to day
operations of the company

B. governance activities are consistently reported to shareowners in a timely and reliable manner

C. the board and its committees are structured to act independently from shareholders

D. None

7. The Brinley Corporation’s Board of Directors recently engaged in an annual self assessment. The
firm's Board contains ten directors. Six of the ten fit the definition of being independent. The written
report of the self-assessment included the following four observations: Observation 1: The
independent directors meet in separate session without management on an as-needed basis.
Observation 2: Two of Brinley’s directors are senior managers of the corporation. Observation 3: The
board members are elected on a staggered basis in which two directors are up for election each year.
Observation 4: The Board of Directors have unlimited access to the firm's legal counsel and other firm
consultants as well as budgetary authority, subject to management approval, to hire outside
consultants. Are the Observations 1 and 2 likely to be consistent with corporate governance best
practice?

A. Observation 1: No; Observation 2: No

B. Observation 1: No; Observation 2: Yes

C. Observation 1: Yes; Observation 2: No

D. Observation 1: Yes; Observation 2: Yes

8. The Brinley Corporation’s Board of Directors recently engaged in an annual self assessment. The
firm's Board contains ten directors. Six of the ten fit the definition of being independent. The written
report of the self-assessment included the following four observations: Observation 1: The
independent directors meet in separate session without management on an as-needed basis.
Observation 2: Two of Brinley’s directors are senior managers of the corporation. Observation 3: The
board members are elected on a staggered basis in which two directors are up for election each year.
Observation 4: The Board of Directors have unlimited access to the firm's legal counsel and other firm
consultants as well as budgetary authority, subject to management approval, to hire outside
consultants. Are the Observations 3 and 4 likely to be consistent with corporate governance best
practice?

A. Observation 3: No; Observation 4: No

B. Observation 3: No; Observation 4: Yes

C. Observation 3: Yes; Observation 4: No

D. Observation 3: Yes; Observation 4: Yes

9. Which of the following is a factor that Investors might consider to be a negative when analyzing
Board Members’ qualifications? A Board member

A. Is able to act with care and competence as a result of relevant expertise or understanding of the
risks the Company assumes as part of its business operations

B. has experience serving on other Boards, particularly with Companies known for having good
corporate governance practices

C. has made public statements that can provide an indication of having an ethical perspective

D. serves on a number of Boards for other Companies

10. Which of the following is not correct?

A. Corporate governance is designed to prevent one group from expropriating the cash flows and
assets of one or more other groups

B. Corporate governance is the arrangement of checks, balances, and incentives a company needs
to manage the conflicting interests between management and inside shareowners

C. Corporate governance is the system of internal controls and procedures by which individual
companies are managed

D. None.