1. B is correct.

Compared with other stakeholder groups, customers tend to be less

affected by or concerned with a company’s financial performance.

2. A is correct. Shareholder and manager interests can diverge with respect to risk

tolerance. In some cases, shareholders with diversified investment portfolios can

have a fairly high risk tolerances because specific company risk can be diversified

away. Managers are typically more risk averse in their corporate decision making

to better protect their employment status.

3. B is correct. Often, policies on related-party transactions require that such

transactions or matters be voted on by the board (or shareholders), excluding the

director holding the interest.

4. B is correct. The election of directors is considered an ordinary resolution and,

therefore, requires only a simple majority of votes to be passed.

5. C is correct. The risks of poor corporate governance have long been understood

by analysts and shareholders. In contrast, the practice of considering environmental

and social factors has been slower to take hold.

6. A is correct. A specific concern among investors of energy companies is the existence

of “stranded assets,” which are carbon-intensive assets at risk of no longer

being economically viable because of changes in regulation or investor sentiment.

7. C is correct. Material environmental effects can arise from strategic or operational

decisions based on inadequate governance processes or errors in judgment.

For example, oil spills, industrial waste contamination events, and local resource

depletion can result from poor environmental standards, breaches in safety

standards, or unsustainable business models. Such events can be costly in terms

of regulatory fines, litigation, clean-up costs, reputational risk, and resource

management.
8. C is correct. Responsible investing is the broadest (umbrella) term used to describe

investment strategies that incorporate environmental, social, and governance

(ESG) factors into their approaches.

9. A is correct. Social factors considered in ESG implementation generally pertain

to the management of the human capital of a business, including data privacy and

security.

10. A is correct. Negative screening refers to the practice of excluding certain sectors,

companies, or practices that do not meet specific ESG criteria based on the

investor’s values, ethics, or preferences.

11. B is correct. While leverage increases risk for all stakeholders, shareholders

generally benefit through higher potential returns. Senior management typically

benefits through equity-based compensation. For non-management employees,

equity-based compensation is likely to be small to non-existent.

12. C is correct. Corporate governance is the arrangement of checks, balances, and

incentives a company needs to minimize and manage the conflicting interests

between insiders and external shareholders.

13. B is correct. The board typically ensures that the company has an appropriate

enterprise risk management system in place.

14. B is correct. A common law system offers better protection of shareholder interests

than does a civil law system.