Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What does effective corporate governance ensure regarding business conduct?

1. It eliminates all risks associated with investment

2. It mandates a profit-over-people approach

3. It promotes ethical and effective business practices

4. It focuses exclusively on financial performance

The correct answer is: It promotes ethical and effective business practices

Effective corporate governance plays a pivotal role in ensuring that businesses operate with integrity and accountability. By promoting ethical and effective business practices, it establishes a framework that encourages transparency, stakeholder engagement, and responsible decision-making. This approach not only enhances the company’s reputation but also aligns the interests of various stakeholders, including shareholders, employees, customers, and the community at large. In doing so, corporate governance fosters an environment where ethical considerations are prioritized, which can lead to sustainable business success. This includes adhering to legal standards, implementing checks and balances within leadership, and encouraging ethical behavior throughout the organization. Consequently, businesses that engage in effective corporate governance tend to demonstrate long-term viability and success, ultimately benefiting all stakeholders involved. The other options do not align with the principles of effective corporate governance. Eliminating all risks associated with investment is unrealistic, as some level of risk is inherent in any investment. A profit-over-people approach contradicts the ethical considerations at the heart of good governance, which seeks to balance profit with social responsibility. Lastly, focusing exclusively on financial performance overlooks the broader objectives of corporate governance, which includes ethical practices and stakeholder relationships beyond just financial outcomes.