Certified Financial Management Specialist Practice Exam

What is the primary responsibility of the board in terms of corporate governance?

1. To set product prices in the market

2. To oversee corporate matters and management activities

3. To enforce regulations on external parties

4. To conduct market research regularly

The correct answer is: To oversee corporate matters and management activities

The primary responsibility of the board in terms of corporate governance is to oversee corporate matters and management activities. This involves ensuring that the company is operating in accordance with its established policies, regulations, and legal requirements. The board is tasked with guiding the overall direction of the organization, making critical decisions about strategy and risk management, and holding management accountable for its performance. Good governance practices demand that the board not only monitor management's activities but also engage in thoughtful deliberation regarding the company's objectives and their attainment. This includes assessing the performance of executives, approving budgets, and making long-term strategic decisions that best position the organization for success. In contrast to the other options, setting product prices, enforcing regulations on external parties, and conducting market research, while important functions within a corporate context, fall outside the primary governance role of the board. These activities are typically managed by operational teams and departments within the organization, with the board focusing on broader oversight and strategic guidance. Thus, effective governance by the board is crucial for maintaining accountability and ensuring that the organization fulfills its mission and responsibilities to stakeholders.