10: Corporate governance Flashcards
What is the UK Corporate Governance Code?
The UK Corporate Governance Code is a code of practice that follows a corporate perspective on corporate governance
Is compliance with the code a legal requirement?
NO
However, London Stock Exchange Listing Rules require all premium listed companies to
- Apply to Code’s principles
- include in their annual reports their compliance
What does the London Stock Exchange require all premium listed companies to do regarding the UK Corporate Governance Code?
- apply the code’s principles
Include in their annual reports:
- statement of HOW they applied principles
- statement of compliance with code provisions
- explanation of non-compliance in any way
Does anything in the code override general statutory requirement to treat shareholders equally?
NO
Departure from compliance with certain provisions may be justified
What has to be included in a disclosure statement by premium listed companies?
- reporting how the company applies the principles
- confirmation it complies
- explaining in areas why it does not comply
What are the five sections of the UK Corporate Governance Code?
- board leadership and company purpose
- division of responsibilites
- composition, succession and evaluation
- audit, risk, and internal control
- remuneration
With regard to board leadership and company purpose, which five principles should premium listed companies comply with?
A. a successful company is lef by an effective entreprenurial board with promotion of long-term sustainable success
B. the board should establish the company’s purpose, values and strategy and align culture
C. board should ensure neccessary resources for meeting objectives and measuring performance
D. board should ensure effective engagement and encourage participation
E. board should ensure workforce policies and practices are consistent with company values
With regard to division of responsibilities, which four prinicples must premium listed companies comply with?
F. The chair leads the board and is responsible for its overall effectiveness
G. The board should include an appropriate combination of executive and non-executive directors (NEDs)
H. NEDs should have sufficient time to meet their board responsibilities
I. The board, supported by the company secretary should ensure that is has the policies, processes, information and time to function effectively
Premium listed companies must either comply with the following provisions or explain why they have not done so: (8)
- the chair should be indepdenent on appointment
- A chief executive should not become Chair of the same company
- at least 1/2 the board should be NEDs
- NEDs can appoint and remove executive directors
- The responsibilites of the chair, chief executive and committees should be clear
- When making new appointments, the board should consider demand on director’s time
- all directors should have access to the advise of the company secretary
With regard to composition, succession, and evaluation, which three principles are a premium listed company required to comply with?
J. Appointments to the board should be subject to a formal, rigorous, transparent procedure with an effective succession plan
K. The board and its committees should have a combination of skills, experience and knowledge
L. Annual evaluation of the board should consider its composition, diversity and how effectively members work together
With regard to audit, risk, and control, what three principles must premium listed companies comply with?
M. transparent policies to ensure independence and effectiveness of internal and external audit function
N. The board must present a fair and balanced assessment of a company’s position and prospects
O. The board must establish procedures to manage risk, oversee internal control and determine principal risk
With regard to remuneration, what three principles must premium listed companies comply with?
P. Executive remuneration should be aligned to company purpose and values
Q. There must be a formal, transparent procedure for developing policy on executive remuneration
R. Directors should exercise independent judegement and discretion when authorising remuneration outcomes
Auditors of listed companies also have to report on which two?
- the director’s remuneration report
- the company’s compliance with UK Corporate Governance Code
What is an external audit?
the purpose of external audit is to issue an opinion in an audit report whether the financial statement produced by directors give ‘a true and fair view’ of financial performance
What is internal audit?
An independent part of the company which monitors the effective operation of its internal control and risk management systems
Internal audit itself is a key element of the company’s system of internal control
The independence of internal auditors should be preserved so they can carry out which following tasks? (9)
- how risks are managed and identified
- embedding risk management into procedure
- ensuring assets are safeguarded
- ensuring operations are in accordance to company policy
- ensuring legal and regulatory compliance
- records and reports are up to date
- helping management detect and deter fraud
- helping to identify savings and opportunities
The UK Corporate Governance Code recommends the board’s audit committee should monitor the effectiveness of the internal audit function in which two ways? (2)
- appointing the head of internal audit
- ensuring the function has sufficient resources, e.g. staff, access to management
