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Answer: Company 2
## Explanation Corporate governance quality is assessed based on board independence and separation of CEO/Chairperson roles: **Key Factors:** - **Board Independence**: Higher percentage of independent directors indicates stronger governance - **CEO/Chairperson Separation**: When CEO also serves as chairperson, it weakens board oversight and creates potential conflicts of interest **Analysis of Each Company:** - **Company 1**: - Low percentage of independent directors (weak) - CEO does NOT serve as chairperson (strong) - Mixed governance characteristics - **Company 2**: - Low percentage of independent directors (weak) - CEO serves as chairperson (weak) - **Both governance weaknesses present** - **Company 3**: - High percentage of independent directors (strong) - CEO serves as chairperson (weak) - Has one strong governance characteristic **Conclusion:** Company 2 has the weakest corporate governance because it combines both negative factors: low board independence AND CEO-chairperson duality. This creates the greatest potential for governance failures and lack of effective oversight.
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An analyst gathers the following information about three companies:
| Company 1 | Company 2 | Company 3 |
|---|---|---|
| Percentage of independent directors: | Low | Low |
| CEO serves as chairperson: | No | Yes |
All else being equal, which of the companies most likely has the weakest corporate governance?
A
Company 1
B
Company 2
C
Company 3