Reading 48: The Corporate Governance of Listed Companies: issues, black, definition, class

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1.There are a lot of issues to consider in determining board independence. What would be the best definition of true “independence”?

A)   Independence, as it relates to board members, refers to avoidance of material conflicts of interest.

B)   Independence, as it relates to board members, refers to the degree to which these persons are not biased or otherwise controlled by firm management or the outside audit group.

C)   Independence, as it relates to board members, refers to the degree to which these persons are not biased or otherwise controlled by firm management or other groups which may have some degree of control over management.

D)   An independent board will make decisions which benefit both management and shareholder interests.

2.Rita Sang is a member of the XYZ Company Board of Directors. Rita’s sister, Sarah Everett, is employed by XYZ as Vice President of Information Systems.

Kevin Ritter is also a member of XYZ’s Board of Directors and serves on XYZ’s internal audit committee. Kevin’s son, Cary Ritter, is an audit manager with a major accounting firm. Cary Ritter’s firm does not provide audit services to XYZ. Which of the following statements concerning independence is TRUE?

A)   Kevin Ritter is considered an independent board member but Sang is not considered an independent board member.

B)   Both Kevin Ritter and Sang are considered independent board members.

C)   Neither Kevin Ritter nor Sang are considered independent board members.

D)   Sang is considered an independent board member but Kevin Ritter is not considered an independent board member.

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答案和详解如下：

1.There are a lot of issues to consider in determining board independence. What would be the best definition of true “independence”?

A)   Independence, as it relates to board members, refers to avoidance of material conflicts of interest.

B)   Independence, as it relates to board members, refers to the degree to which these persons are not biased or otherwise controlled by firm management or the outside audit group.

C)   Independence, as it relates to board members, refers to the degree to which these persons are not biased or otherwise controlled by firm management or other groups which may have some degree of control over management.

D)   An independent board will make decisions which benefit both management and shareholder interests.

The correct answer was C)

Avoiding material conflicts of interest is important, but this is not a true definition of independence. Independent board members should be independent from the outside audit group, but this is not part of the actual definition. Benefiting management interests should not be a board priority.

2.Rita Sang is a member of the XYZ Company Board of Directors. Rita’s sister, Sarah Everett, is employed by XYZ as Vice President of Information Systems.

Kevin Ritter is also a member of XYZ’s Board of Directors and serves on XYZ’s internal audit committee. Kevin’s son, Cary Ritter, is an audit manager with a major accounting firm. Cary Ritter’s firm does not provide audit services to XYZ. Which of the following statements concerning independence is TRUE?

A)   Kevin Ritter is considered an independent board member but Sang is not considered an independent board member.

B)   Both Kevin Ritter and Sang are considered independent board members.

C)   Neither Kevin Ritter nor Sang are considered independent board members.

D)   Sang is considered an independent board member but Kevin Ritter is not considered an independent board member.

The correct answer was A)

Sang is not considered independent since her sister holds an executive position with XYZ. Kevin Ritter is independent since his son’s accounting firm does not provide audit services to XYZ.

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