Certified Financial Management Specialist Practice Exam

Who elects the board of directors in a corporation?

1. Corporation Executives

2. Management Team

3. Shareholders

4. Government Regulators

The correct answer is: Shareholders

The board of directors in a corporation is elected by the shareholders. This mechanism is a fundamental principle of corporate governance, where the shareholders, as the owners of the corporation, have the right to vote on key matters, including the election of the board. The board of directors is responsible for making significant decisions for the company, such as establishing company policy, making strategic plans, and overseeing the management team to ensure that the corporation is being run in the shareholders' interests. The shareholders exercise their voting rights in annual meetings or special meetings, where they can appoint individuals to serve on the board. This process ensures that the individuals who are likely to impact the company's operations and direction are accountable to the very owners who invest in and have a stake in the company’s success. In contrast, it’s important to note that corporate executives and the management team do not have the authority to elect the board. While they may influence and recommend candidates, the ultimate decision rests with the shareholders. Government regulators do not have a role in the election of the board; their involvement typically centers around oversight and ensuring compliance with laws and regulations.