3. Corporate Governance

Question 1

What is corporate governance?

Answer 1

The system by which organisations are directed and controlled

Question 2

What is the objective of good corporate governance?

Answer 2

Ensure the management and reduction of risk

Question 3

What is the main job of Non Exec Directors?

Answer 3

Scrutinise the actions of EDs and provide reassurance to shareholders that management is acting in their best interests

Question 4

What are the 3 main board committees?

Answer 4

1. Audit
2. Remunerations
3. Nominations

Question 5

What 6 things should an NED have to be independent?

Answer 5

1. Not been an employee of group within 5 years
2. No material business relationship within 3 years
3. No remuneration other than NED fee
4. No close family ties with senior employees
5. Not a significant shareholder
6. Not been on the board for more than 9 years

Question 6

What are the 4 advantages of independent NEDs?

Answer 6

1. More objective
2. External experience
3. Challenge to develop
4. Conduct performance monitoring and so provide comfort to shareholders

Question 7

What are the conditions of the makeup of the audit comittee?

Answer 7

At least 3 NEDs, (2 in smaller companies) at least 1 with relevant financial experience

Question 8

What are the 4 internal aspects of the audit committee?

Answer 8

1. Monitor and review effectiveness of the internal audit function
2. Appoint the head of the audit committee
3. Review the internal audit plan
4. Review the internal control and risk management systems

Question 9

What are the 4 external aspects of the audit committee?

Answer 9

1. Monitor the integrity of the financial statements
2. Make recommendations to the board on the appointment and remuneration of the external auditors
3. Monitor the external auditors independence and objectivity
4. Review the external auditors letter of weakness

Question 10

Who appoints the audit committee?

Answer 10

The board, on the recommendation of the nomination committee

Question 11

Who oversees the entities whistle-blowing procedure?

Answer 11

The audit committee

Question 12

If UK companies do not follow the UK Corporate Governance code, what must they do?

Answer 12

Disclose their non compliance

Question 13

What are the 6 aspects of the UK Corporate Governance code?

Answer 13

1. Board leadership and company purpose
2. Division of responsibilities
3. Composition, succession and evaluation
4. Audit, risk and internal control
5. Remuneration
6. Relations with shareholders

Question 14

How much of the board should be NEDs?

Answer 14

At least half

Question 15

How often should board members be appraised?

Answer 15

Annually

Question 16

What is the maximum length of time that the chair should serve?

Answer 16

9 years

Question 17

Who needs to review new long term incentives of directors?

Answer 17

Shareholders

Question 18

Who needs to review new long term incentives of directors?

Answer 18

Shareholders

Question 19

What are the 3 main US SOX controls?

Answer 19

1. Audit committee should be independent of directors
2. The CEO and CFO must prepare the certification statement
3. The financial statements must include an internal control report