NACD Directorship Certification Study Guide - Flashcards

Flashcards covering key concepts from the NACD Directorship Certification Study Guide, Second Edition, focusing on board responsibilities, financial oversight, governance, shareholder engagement, and committee functions.

What is the primary role of an audit committee in publicly traded companies?

To provide oversight of the financial reporting process, the audit process, and the company’s system of internal controls.

According to the NYSE and Nasdaq, what is the minimum number of members required for an audit committee?

Three.

What qualification is mandatory for all members of a publicly traded company's audit committee?

They must have independence.

When a director receives an email from a shareholder, what would be an appropriate response?

Do not reply. Forward the email to the chief executive officer (CEO) and request that the CEO formally reply and inform the board of the disposition.

What is the key role of Glass Lewis and Institutional Shareholder Services (ISS) in the proxy vote?

They advise shareholders on director nominees, compensation, and governance.

Which disclosure document to investors typically contains the Compensation Discussion & Analysis (CD&A)?

The proxy statement.

Who is primarily responsible for establishing the board meeting agenda, in conjunction with the CEO?

The independent board chair or lead director.

In what situation would you most likely find a lead independent director?

In a company with a combined CEO and chairman of the board.

What is the best way to foster mutual trust and respect between the board and management?

Ensure the executive leadership team and the board represent a diversity of thought leadership and that there is respect for all opinions and views expressed.

Which group is the best choice to handle a serious complaint regarding a company’s chief executive officer?

The independent directors of the board.

Why is board diversity considered a strategic imperative?

To enhance perspective by introducing diversity of knowledge, skills, and abilities.

Who should bear primary responsibility for initial strategy formulation, with meaningful board involvement?

The chief executive officer and senior management.

What is the fundamental distinction between the roles of the board and the CEO/management?

Directors oversee and guide management; the CEO and management lead company operations.

Which factor is usually present when a director breaches the duty of loyalty?

A financial interest in both sides of a business transaction.

What are the two most important fiduciary duties of a board member?

The duties of loyalty and care.

What does an effective director need to do regarding the organization's competition and industry?

A director should spend sufficient time independently evaluating the organization’s relative competitive position.

Among the following, which action should most concern a director in terms of competitive threats?

Loss of a key customer to a competitor.

Who typically educates the board on regulatory matters that impact the company's industry?

General counsel.

What is an essential element of an effective crisis management plan?

A communications plan.

What element of an effective compliance program is highlighted by the US Sentencing Guidelines as crucial for mitigating punishment?

The existence of an effective E&C program and self-reporting, cooperation, or acceptance of responsibility.