Ethics - Additional Compensation

Roger Baker, CFA, is a fixed income portfolio manager for a medium-sized investment firm and has been asked to serve on the board of directors for Cold Delight, Inc., a national chain of ice cream shops. Baker personally owns stock in Cold Delight, but the firm has no debt securities outstanding. Baker’s former college roommate is the CEO of the company. As a member of the board of directors, Baker would attend four meetings each year and receive $15,000 a year in director’s fees, and he and his immediate family will also receive a 50% discount in all Cold Delight stores. According to Standard IV(B) Additional Compensation Arrangements, Baker: A. must provide written disclosure and obtain written permission from his employer before accepting the board position and its accompanying benefits. B. must provide written disclosure and receive permission from his employer, but it needs not to be written. C. may accept the position without permission but must disclose the duties of the position and the compensation to his employer. D. does not need to disclose the offer or receive permission.


A - I thought this was pretty straight forward

Actually, I don’t think it is straight forward. He’s not entering in to a business that competes with his employer. I think it might be C.

Yes. I picked A, the answer is D. I have no idea why. Refer to Schweser Practice Exams. Exam 3 - Afternoon Session. Good luck!

I actually see why. He doesn’t need to disclose it at all from the stand point of compensation… would only need to disclose it from the perspective of potential conflict of interest. I was 1/2 way there.

I think Additional Compensation covers all kinds…in addition, I remember something about him having to get permission from employer and others??

what? could someone look into this?

What’s the level of difficulty of Schweser’s Practice Exams when compared to the real thing?

Ok, I think that sometimes the answers provided by schweser are quite arguable. Even though from the point of view of duties to employers he is not in direct competition with his employer, he still needs to disclose any additional compensation received for activities such as being a member of a board of directors… In any case, for time demanding activities like being a director, i don’t see how you wouldn’t have to disclose it to your employer so at the very least it could have been answer C. The only thing that could support the decision to not disclose is that the firm has no debt outstanding and thus it’s not covered by the analyst… but i find this is not a very strong argument. What if the firm issues bonds the week after he accepts the offer?

I think it’s because he has not yet accepted, but only been asked. If he is going to accept it, then he needs the written disclosure from his employer. I think there’s another one similar to this in Schweser…personally, I think it’s a horrible question.

> obtain written permission from his employer before accepting the board position it says clearly that he should do this *before* accepting the position. It didn’t say obtain permission for just thinking about getting the position!