BA4: Fundamentals of Ethics, Corporate Governance and Business Law

• Topic 01

  Business Ethics and Ethical Conflict

  48 questions
• Topic 02

  Corporate Governance, Controls and CSR

  63 questions
• Topic 03

  Company Administration

  45 questions
• Topic 04

  Legal System, Contract and Employment Law

  54 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. A CIMA member discovers that a colleague has been copying client information to a personal device, accepting expensive gifts from a supplier, and making decisions without proper technical knowledge. The member is unsure which fundamental principles are being violated. How many of the five fundamental principles are potentially threatened in this scenario?

   • A
     All five principles are potentially threatened
     Correct answer
   • B
     Only two principles are threatened (Confidentiality and Objectivity)
   • C
     None of the principles are threatened as the actions may be authorized
   • D
     Only four principles are threatened (all except Professional Behaviour)
   Explanation

   All five principles are potentially threatened: Confidentiality (copying client data inappropriately), Objectivity (accepting gifts creates self-interest threat), Professional Competence and Due Care (making decisions without proper knowledge), Integrity (the cumulative behaviour suggests dishonesty), and Professional Behaviour (such conduct could bring the profession into disrepute). This scenario demonstrates how ethical violations often involve multiple principles simultaneously.

2. What is the primary role of the board of directors in corporate governance?

   • A
     To provide strategic leadership and oversee management on behalf of shareholders
     Correct answer
   • B
     To execute day-to-day operations and manage employees
   • C
     To market products and services to customers
   • D
     To negotiate with trade unions and handle employee disputes
   Explanation

   The board of directors provides strategic leadership, sets the company's direction, and oversees management to ensure the company is run effectively in the interests of shareholders and other stakeholders. Day-to-day operations are the responsibility of executive management, not the board.

3. A senior CIMA member discovers their employer has been operating in technical breach of a minor regulatory requirement for several years. The breach causes no harm to stakeholders and correcting it would require significant expense and public disclosure that would damage the company's reputation and share price. The CEO argues that 'the spirit of the law' is being met and asks the member to remain silent. How should Professional Behaviour guide the member's response?

   • A
     Insist on correcting the breach and making required disclosures, as compliance with laws and regulations is mandatory regardless of cost or consequences
     Correct answer
   • B
     Negotiate a compromise where the breach is corrected gradually over time without public disclosure to minimize reputational damage
   • C
     Report the matter confidentially to the audit committee and let them decide the appropriate course of action
   • D
     Resign from the organization to avoid personal association with the breach while avoiding the need to report externally
   Explanation

   Professional Behaviour requires CIMA members to comply with relevant laws and regulations without exception. The principle does not allow for cost-benefit analysis or balancing stakeholder interests against legal compliance. While the member should escalate through appropriate internal channels (e.g., audit committee), they cannot remain silent about ongoing non-compliance. If management refuses to act, whistleblowing may be necessary. The obligation to comply with laws takes precedence over protecting organizational reputation or financial interests.

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