Financial Risk Manager Part 1
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The CEO of the firm must also be the chairman of the board of directors in order to bring consistency in the board decisions.
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TTanishq
A
The board of directors being comprised of a majority of independent members is indeed a best practice in corporate governance. Independent directors are not involved in the day-to-day operations of the company and can therefore provide unbiased oversight and decision-making.
B
Providing training to a director from outside the industry before they join the board aligns with good corporate governance practices. This ensures that all board members have an understanding of the industry, which enables them to make informed decisions for the company.
C
Considering the interests of all stakeholders, including debtholders, while making decisions is also a best practice in corporate governance. This approach ensures that decisions are made with consideration for their impact on all parties involved with or affected by the company's operations.
D
The CEO of the firm must also be the chairman of the board of directors in order to bring consistency in the board decisions.
Explanation:
Explanation
The correct answer is D because this statement describes a poor corporate governance practice, not a best practice.
Why Option D is Incorrect:
- Separation of Roles: The CEO and Chairman roles should be separate to maintain checks and balances
- Conflict of Interest: Having the same person in both positions creates concentration of power
- Lack of Objectivity: The CEO-Chairman may prioritize personal interests over shareholder interests
- Best Practice: Independent oversight requires different individuals in these roles
Why Other Options Are Correct Practices:
- Option A: Majority independent board members provide unbiased oversight
- Option B: Training directors from outside industries ensures informed decision-making
- Option C: Considering all stakeholder interests promotes comprehensive decision-making
This question tests understanding of corporate governance principles, specifically the importance of separating the CEO and Chairman roles to maintain proper oversight and prevent conflicts of interest.
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