Question 1

Pluralist systems of corporate governance recognise a broader group of stakeholder interests than agency systems.

Accepted Answer

Pluralist systems of corporate governance emphasize the importance of considering the interests of a broader range of stakeholders including employees, customers, suppliers and the wider community, in addition to shareholders. In contrast, agency systems prioritize the interests of shareholders as the primary stakeholders.

Question 2

Continuous disclosure requires companies to notify the ASX of any confidential information that a reasonable person would expect to have a material effect on the price of the securities of that entity.

Accepted Answer

Continuous disclosure requires companies to notify the ASX of any information that a reasonable person would expect to have a material effect on the price of the securities of that entity, not just confidential information.

Question 3

Messrs Williams and Adler were prosecuted for breaches of s.184 of the Corporations Act,and were found to have acted dishonestly and recklessly in the performance of their duties as directors of HIH Insurance Ltd.

Accepted Answer

This statement is true. Williams and Adler were indeed prosecuted for breaches of s.184 of the Corporations Act and were found to have acted dishonestly and recklessly in the performance of their duties as directors of HIH Insurance Ltd.

Question 4

The Corporations Act definition of a director is very wide and can extend to an external advisor of the company who investigates a company's affairs and makes suggestions as to the running of the company.

Accepted Answer

The Corporations Act defines a director as "a person who is appointed to the position of director" and includes any alternate or nominee director, as well as any person "who is not validly appointed as a director if that person acts in the position of a director." This can extend to an external advisor who is contributing to the management and decision-making processes of the company, even if they are not formally appointed as a director.

Question 5

Under the Corporations Act in order to be a non-executive director of a company you must be independent.

Accepted Answer

The Corporations Act does not mandate that non-executive directors must be independent, although independence is often considered best practice for corporate governance.

Question 6

The ASX established the ASX Corporate Governance Council following the spate of corporate collapses in Australia early this century.

Accepted Answer

The ASX did establish the ASX Corporate Governance Council as a response to the corporate collapses in Australia in the early 2000s.

Question 7

Under the insider trading provisions of the Corporations Act,persons are prohibited from communicating information that is likely to have a material effect on a company's share price to anyone they think will deal in the company's shares.

Accepted Answer

This is correct as per the insider trading provisions of the Corporations Act. Persons who possess inside information are prohibited from communicating it to others who may deal in the company's shares, as it could have a material effect on the share price and give an unfair advantage to those who possess the information.

Question 8

Hard regulations are also referred to as black letter law and result in legally enforceable obligations.

Accepted Answer

Hard regulations are specific, clear and legally enforceable, often referred to as black letter law. Soft regulations, on the other hand, are not legally enforceable and are sometimes referred to as guidelines or recommendations.

Question 9

The finance function of companies is under increasing pressure to produce meaningful information that can be readily understood by part-time directors.

Accepted Answer

As part-time directors may not have a full understanding of finance and accounting jargon, the finance function is under pressure to present information in a clear and concise manner that can be easily understood by them.

Question 10

Recent academic studies have found that the presence of 'grey' directors on a company's board consistently impacts negatively on company performance.

Accepted Answer

There is no consistent evidence that 'grey' directors, who are independent but have some past or present connections to the company, always negatively impact company performance. The effect can vary depending on the context and specific circumstances of the company.

Quiz 4: Fundamental Concepts of Corporate Governance