Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is NOT a characteristic of poor corporate governance?

1. Misleading accounts and information

2. Emphasis on short-term profitability

3. Active engagement with shareholders

4. Lack of independent scrutiny

The correct answer is: Active engagement with shareholders

Active engagement with shareholders is an essential characteristic of good corporate governance. This practice ensures that companies are accountable and transparent, and it fosters dialogue between management and shareholders. It allows for a better understanding of stakeholder concerns and improves decision-making within the corporate structure. In contrast, misleading accounts and information, an emphasis on short-term profitability, and a lack of independent scrutiny are all indicative of poor corporate governance. Misleading accounts can lead to a significant erosion of trust among investors and stakeholders, while focusing solely on short-term profitability may compromise long-term business sustainability and ethical considerations. Furthermore, a lack of independent scrutiny can result in unchecked executive power, leading to potential mismanagement or financial impropriety. Thus, the identification of active engagement with shareholders as not being a characteristic of poor corporate governance is accurate, as it contrasts sharply with the hallmarks of governance failures.