1. Frameworks And Mechanisms

Question 1

How does the Cadbury Report 1992 define Corporate Governance?

Answer 1

“The system by which companies are directed and controlled”

Question 2

How does the Institute define Corporate Governance?

Answer 2

“The combination of processes and structures implemented by the Board in order to inform, direct, manage and monitor the activities of the organisation toward the achievement of its objectives”

Question 3

Who is chiefly responsibly for ensuring the processes and structures of a company contribute effectively to the company achieving its objectives?

Answer 3

The Board of Directors

Question 4

In what piece of legislation are the statutory duties of company directors laid down?

Answer 4

Companies Act 2006

Question 5

What are the seven statutory duties of company directors, as laid down in the companies act 2006?

Answer 5

1. To act within powers
2. To promote the success of the company
3. To exercise independent judgment
4. To exercise reasonable care, skill and diligence
5. To avoid conflicts of interest
6. Not to accept benefits for third parties
7. To declare interest in proposed transactions and arrangements

Question 6

Which of the statutory duties of company directors has caused most controversy?

Answer 6

The second: “to promote the success of the company”

Question 7

According to the Companies Act 2006, to what six factors should company directors pay regard when promoting the success of the company?

Answer 7

1. Likely long-term consequences of decisions
2. Interests of the company’s employees
3. The need to foster the company’s business relationships with its suppliers, customers and others
4. The impact of the company’s operations on the community and environment
5. The desirability for the company of maintaining a reputation for high standards of business conduct
6. The need to act fairly as between members of the company

Question 8

The Companies Act 2006 list six factors directors should consider when promoting the success of the company. On what concept are these factors based?

Answer 8

Enlightened shareholder value

Question 9

Describe the concept of enlightened shareholder value.

Answer 9

The idea that benefits to shareholders are increased when the company takes into account the wider interests of other stakeholders

Question 10

How does a Board of Directors usually arrange itself to carry out its duties effectively?

Answer 10

It arranges itself into subcommittees

Question 11

Name the three principal subcommittees of the Board

Answer 11

Audit Committee
Appointments Committee
Remuneration Committee

Question 12

The Treadway Commission developed which framework for corporate governance in 1992?

Answer 12

The COSO model

Question 13

What are the five main components of the COSO corporate governance framework?

Answer 13

Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring Activities

Question 14

What are the three main theories about the role of corporate governance?

Answer 14

Agency theory
Stewardship theory
Stakeholder theory

Question 15

Agency and stewardship theory are based on the problem of the relationship between which two parties?

Answer 15

The principal and the agent

Question 16

… theory views agents as primarily opportunistic.

Answer 16

Agency

Question 17

In agency theory, what is seen as the primary role of corporate governance?

Answer 17

To control managers and protect the interests of the shareholders.

Question 18

… theory views agents as mainly good and willing to serve the interests of the principals.

Answer 18

Stewardship

Question 19

In stewardship theory, the role of corporate governance is seen as primarily … the job of management.

Answer 19

Facilitating

Question 20

… theory broadens the focus from principal and agent to include the interests of a wider range of groups.

Answer 20

Stakeholder

Question 21

… theory is partly responsible for the concept of enlightened shareholder value, which plays a part in the Companies Act 2006

Answer 21

Stakeholder

Question 22

The primary requirement of the UK Corporate Governance Code is to comply or …

Answer 22

Explain

Question 23

The primary requirement of the UK Corporate Governance Code is to … or explain.

Answer 23

Comply

Question 24

The UK Corporate Governance Code is an example of a …-based governance code.

Answer 24

Principles

Question 25

SOX is an example of a …-based governance code.

Answer 25

Rules

Question 26

What was the first major report on corporate governance in the UK that formed the basis of subsequent developments?

Answer 26

The Cadbury Report (1992)

Question 27

A benefit of a principles-based approach to corporate governance is that it gives the Board … in developing sound governance practices in their particular situation.

Answer 27

Flexibility

Question 28

In what year was the Cadbury Report published?

Answer 28

1992