- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 3. Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
- Subject 2. Corporate Governance Mechanisms
CFA Practice Question
Select the incorrect statement(s) regarding good corporate governance practices.
II. Board members cannot use company assets.
III. If a shareholder-approved proposal is not binding, the company does not have to implement it.
I. Board members cannot have any material relationship with the company other than as board members or shareholders of the company.
II. Board members cannot use company assets.
III. If a shareholder-approved proposal is not binding, the company does not have to implement it.
A. I and II
B. I and III
C. I, II and III
Explanation: I. Independent board members cannot have any material relationship with the company other than as a board members or shareholders.
II. Board members cannot use company assets for personal use.
III is true. However, this would be a sign of weak corporate governance.
II. Board members cannot use company assets for personal use.
III is true. However, this would be a sign of weak corporate governance.
User Contributed Comments 10
User | Comment |
---|---|
Misah | It is a hard one. You need to read it closely |
nick1981 | The question is misleading or even wrong, it asks for INCORRECT statements but actually all three of them are CORRECT. Am I right or did I get it wrong here? Isn´t it correct for example that company´s assets shouldn´t be used personaly?? |
addidas | The question is right. All statements are wrong as explained. |
julescruis | Yes it is misleading but correct. Watch out for key words, board members can be from management, assets can be used by board members (those who are not independant for instance) and third is sign of weak corporate governance as stated. tricky one... |
Adkins08 | I Executives of firm are normally members of board, so only INDEPENDENT board members may not have material relationship with firm. II Board can use company assets to hire independent consultants, etc. III IMO this one is fine for me, but apparently it's a sign of weak governance |
DarkOblivion000 | Wow so tricky... |
dipu617 | This question was meant to trick us!! :-) |
PeterL | How can it say that #3 is true and yet is incorrect nonetheless? |
endurance | this is pure level 1 style......but a good question |
LyncKidd | Peter, the question asks which are good governance practices. Good is a poor use in this question. If the question were reworded to say strong it would make more sense and be more consistent with the curriculum. |