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Difficulty: Very hardIdentifying Necessary Assumptions

Corporate governance expert: To prevent the catastrophic financial collapses seen recently, a new regulation requires that a majority of any public corporation's risk-management committee be independent directors—those with no prior financial ties to the company. However, this regulation will likely fail to achieve its primary goal. The most significant financial disasters occurred because risk committees were unaware of the complex financial instruments executives were utilizing. Yet, maintaining true independence from a company almost always precludes a deep, specialized understanding of its highly proprietary operations.

Which one of the following is an assumption on which the corporate governance expert's argument depends?

  1. One cannot reliably become aware of the complex financial instruments utilized by a company's executives without a deep, specialized understanding of that company's highly proprietary operations.Answer
  2. B
    Any risk-management committee that lacks a deep, specialized understanding of a company's highly proprietary operations will inevitably fail to prevent a catastrophic financial collapse.
  3. C
    Executives utilizing complex financial instruments typically attempt to conceal these operations from risk-management committees composed primarily of independent directors.
  4. D
    Directors who possess a deep, specialized understanding of a company's highly proprietary operations will generally be aware of the complex financial instruments executives are utilizing.
  5. E
    None of the complex financial instruments utilized by executives can be understood by individuals who have no prior financial ties to the industry as a whole.

Answer

The assumption that one cannot reliably become aware of the complex financial instruments utilized by executives without a deep, specialized understanding of the company's highly proprietary operations.
The correct answer bridges the precise gap between the premises. The argument states that past disasters were caused by committees being unaware of 'complex financial instruments.' It then states that independent directors lack a deep understanding of 'highly proprietary operations.' To conclude that independent directors will therefore fail to prevent disasters, the author must assume that without understanding those proprietary operations, one cannot be aware of the complex financial instruments. Applying the Negation Test confirms this: if they CAN become aware of the instruments without understanding the proprietary operations, the author's logic completely falls apart.

Step-by-Step Solution

1
Analyze the conclusion and premises of the argument.
Conclusion: The regulation requiring independent directors will likely fail to prevent financial collapses. Premises: Collapses happen because committees are unaware of complex financial instruments. Independent directors lack a deep understanding of highly proprietary operations.
Deconstructing the argument is necessary to identify structural gaps between the evidence provided and the claim made.
2
Identify the conceptual gap or term shift in the argument's logic.
The argument shifts from 'unaware of complex financial instruments' (the problem) to 'lack a deep understanding of highly proprietary operations' (the trait of independent directors).
In LSAT Logical Reasoning, arguments frequently equate two different concepts. Finding this shift reveals the unstated assumption connecting them.
3
Formulate the missing link (Supporter Assumption).
The author must believe that lacking an understanding of highly proprietary operations prevents someone from being aware of the complex financial instruments.
To conclude that independent directors will fail for the same reasons past committees failed, their specific deficiency must directly cause that historical failure point.
4
Evaluate the choices using the Negation Technique.
Negating the correct answer yields: 'One can become aware of the instruments without understanding the proprietary operations.' If this is true, the independent directors' limitation doesn't matter, and the argument's conclusion collapses.
The Negation Technique is the definitive test for a Necessary Assumption. If the negated form of an option destroys the argument, that option is the correct necessary assumption.

Key Concept

Bridging conceptual gaps (Supporter Assumptions) and applying the Negation Technique to test logical necessity.
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Identifying Necessary Assumptions

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