3) End of Chapter Qs Flashcards
- What is the status and purpose of the UK Corporate Governance Code (2018)?
Good Gov should facilitate efficient, effective and entrepreneurial management that can deliver shareholder value over the longer term
The Code is published by the FRC
UK Gov code applies to all companies with a premium listing of equity shares in the UK, regardless if incorporated in the UK or overseas
No legal obligation of compliance
The Listing Rules require all companies with a premium listing in the UK to include a corporate governance report in their annual report and accounts
- Who does the UK Governance Code (2018) apply to?
UK Gov code applies to all companies with a premium listing of equity shares in the UK, regardless if incorporated in the UK or overseas
- What are the main roles and responsibilities of the audit committee in the UK Corp Gov Code (2018)?
Board should at least annually, conduct a review of the effectiveness of its risk management and control systems, and report that it has done so to its shareholders
Establish a committee of at least 3 (smaller companies 2) independent NEDs, at least one of whom should have recent and relevant financial experience
Main principle are:
- financial and business reporting - the board should present a balanced and understandable assessment of the company’s position and prospects
- the board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems
- establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor
- Who is responsible for setting overall remuneration and benefits for both executive directors and non-executive directors in the Corporate Governance Code (2018)?
A remuneration committee of at least 3 (smaller companies 2) independent NEDs. Shareholders could be invited to approve all new long-term incentive schemes and significant changes to existing schemes
- Who does the QCA Governance Code apply to?
Companies that are listed/ quoted on AIM
- What is the aim and purpose of the Wates Governance Principles?
Provide a framework to help large private companies raise their standards of corporate governance by offering a structure for reporting to fulfil their legal requirements and demonstrate good practice
Companies are req. to disclose their corp gov arrangements in their directors’ report and on their website, including info on whether they follow a formal code
- Which type of investors is the UK Stewardship Code (2020) aimed at?
Institutional investors
Operates alongside the UK Corp Gov Code for listed companies
- What are the principles of UK Stewardship Code (2020)?
The UK Stewardship Code 2020 is designed to enhance the quality of engagement between institutional investors and the companies they invest in. It aims to promote effective stewardship and ensure that investors are acting in the best interests of their clients and beneficiaries. The Code is based on several key principles:
Purpose, Strategy, and Culture: Investors should act in a way that aligns with their purpose and strategy. They should also ensure that their culture supports stewardship and long-term value creation.
Governance, Resources, and Incentives: Institutional investors should have a clear governance structure and ensure they have the necessary resources and skills to effectively carry out stewardship responsibilities. Incentives should align with the long-term interests of clients and beneficiaries.
Monitoring: Investors should actively monitor their investments and engage with companies to understand and address any issues that could affect the long-term value of the investments.
Engagement: Investors should engage with companies on material matters and be proactive in seeking to influence corporate behavior to enhance long-term value.
Voting: Investors should have a clear policy on voting and ensure that voting decisions are made in a way that supports their stewardship responsibilities.
Collaboration: Investors should collaborate with other investors and stakeholders where appropriate to enhance their ability to influence corporate behavior and drive positive outcomes.
Reporting and Accountability: Investors should provide clear and transparent reporting on their stewardship activities and how they are fulfilling their stewardship responsibilities. They should be accountable for their actions and decisions.
These principles aim to ensure that institutional investors are not only considering financial returns but also the broader impact of their investments on society and the environment.
- What is the status and purpose of the CISI’s Code of Conduct?
The CISI principles impose an obligation on members to act in a manner which goes beyond mere compliance and which is consistent with the underlying values of the CISI
- How many principles are there in the CISI’s code of conduct?
Integrity: Demonstrate honesty and integrity in all professional and business relationships.
Objectivity: Ensure that decisions are made impartially, avoiding conflicts of interest and undue influence.
Competence: Maintain and develop the necessary skills, knowledge, and expertise to perform your duties effectively.
Confidentiality: Respect and protect the confidentiality of information acquired in the course of professional activities.
Fairness: Act with fairness in dealings with clients, colleagues, and other stakeholders.
Compliance: Adhere to all relevant laws, regulations, and professional standards.
Professionalism: Conduct oneself in a manner that reflects well on the profession and the organization.
Accountability: Accept responsibility for your actions and decisions, and be transparent about the outcomes.
- What is the FRC guidance with regard to the content of Section 172 statements?
The Financial Reporting Council (FRC) provides guidance on the content of Section 172 statements, which are required by the Companies Act 2006 for UK companies. Section 172 of the Act requires directors to act in a way they consider would be most likely to promote the success of the company for the benefit of its members as a whole. In fulfilling this duty, directors must have regard to several factors, including:
The Likely Consequences of Any Decisions in the Long Term: Directors should consider the long-term impact of their decisions on the company’s success.
The Interests of the Company’s Employees: Directors should take into account the well-being and interests of employees.
The Need to Foster Business Relationships with Suppliers, Customers, and Others: Directors should consider the importance of maintaining positive relationships with key stakeholders.
The Impact of the Company’s Operations on the Community and the Environment: Directors should be mindful of the company’s environmental and social impact.
The Company’s Reputation for High Standards of Business Conduct: Directors should strive to uphold and enhance the company’s reputation for ethical behavior.
The Need to Act Fairly as Between Members of the Company: Directors should ensure that their decisions are fair to all shareholders.
FRC Guidance on Section 172 Statements:
Clear and Comprehensive Disclosure: The FRC advises that the Section 172 statement should provide a clear and comprehensive explanation of how the directors have fulfilled their duty to promote the success of the company. This includes detailing how the various factors listed in Section 172 have been considered.
Engagement with Stakeholders: The statement should describe how the company has engaged with its stakeholders and considered their interests. This engagement should be evident in the decision-making process.
Integration with Business Model and Strategy: The FRC recommends that the Section 172 statement should be integrated with the company’s business model and strategy. It should explain how the consideration of the factors listed in Section 172 influences the company’s strategy and decision-making processes.
Decision-Making Process: Companies should outline the processes and systems in place to ensure that Section 172 considerations are integrated into decision-making. This includes how the board considers stakeholder interests and long-term consequences.
Examples and Evidence: The FRC encourages companies to provide specific examples and evidence of how the Section 172 duty has been applied in practice. This can include case studies or examples of decisions where stakeholder interests and long-term impacts were particularly relevant.
Alignment with Other Reporting: The Section 172 statement should align with other parts of the annual report, such as the strategic report and governance sections, to provide a cohesive view of the company’s approach to promoting its success while considering various factors.
Transparency and Accountability: The FRC stresses the importance of transparency and accountability in the Section 172 statement. Companies should be honest about the challenges and trade-offs involved in their decision-making processes.
The aim of this guidance is to ensure that Section 172 statements are not merely a compliance exercise but a meaningful part of corporate reporting that demonstrates how directors are balancing the interests of various stakeholders while promoting the long-term success of the company.
