3. Impact of Corporate Governance on Strategy Flashcards
What is the definition of corporate governance?
A system by which organisations are directed and controlled. Its ensures the best interests of the company are serviced in the most efficient and effective manner.
What are the benefits of organisations applying a corporate governance framework?
- Reduces risk
- increases internal control
- increases performance
- look good to investors, employees and customers so increases investment
- adopts best practise.
What are the 11 underlying principles of good corporate governance?
Decision Based Qualities
- Integrity
- Fairness
- Judgement
- Independence
- Scepticism
Disclosure Based Qualities
- Transparency
- Probity
- Responsibility
- Accountability
- Innovation
- REPUTATION!!
What are the 5 OECD Principles surrounding corporate governance?
- Rights of shareholders
- Equitable treatment of shareholders
- Role of stakeholders
- Disclosure & transparency
- Responsibilities of the Board
What are the principles of the International Corporate Governance Network?
- Responsibility of Board to shareholders
- Leadership and independence separation of board and executive leadership.
- Composition & appointment of a diverse, experienced Board
- Corporate Culture supporting ethical behaviour
- Risk Management (internal audit)
- Remuneration is clear and aligned to act in s/h interest.
- Reporting and audits are robust, effective and independent.
- General meetings follow procedure.
- Shareholder rights are protected.
What is the main difference between the principles based approach and the rules based approach?
Principles based: Comply or explain (i.e UK Corp. Gov. Code)
Rules based: Comply or ‘die’ (i.e USA S-Ox)
What are the advantages & disadvantages of the principles based approach?
Adv:
- greater flexibility and cost savings
- applies across multiple jurisdictions which makes corp. gov in MNE’s more effective.
- makes both s/h’s and board contemplate corp. gov arrangements
Disadv:
- principles can be vague and ambiguous
- investors can’t be sure of consistency in approach
- incorrectly viewed as voluntary
What are the advantages & disadvantages of the rules based approach?
Adv:
- clear rules are easier to comply with and can be evidenced
- provides a consistent minimum standard for investor confidence
Disadv:
- no deviation irrespective of how illogical the situation is
- enforcement is difficult for situations not explicitly covered by the rules.
What is the purpose of the International Corporate Governance Network?
Provide practical guidance that boards can use to achieve value in the long term and effectively manage their relationships with all types of stakeholders.
What are the US domestic impacts of Sarbanes Oxley?
- listed companies required to ensure internal controls and properly documented and tested.
- accountancy firms have lost almost all non-audit revenue streams from audit clients.
- lawyers must whistle blow on any wrong doing uncovered in companies.
What is the international impact of S-Ox?
- non-US companies listed on US stock exchanges are covered by the provisions of S-Ox.
- As the US is a global power, it influences other countries to adopt a rules based approach.
What are the main criticisms of S-Ox?
- Too weak on some issues but too strong on others.
- Directors may not consult lawyers through fear that S-Ox overrides client-attorney privilege.
- A S-Ox compliance industry has sprung up.
- Companies are turning away from the US Stock market towards other markets.
What makes the South African King Report different to other governance guidance?
It advocates an integrated approach to corp. gov. to a wide range of stakeholders by embracing the social, environmental and economic aspects of company activities.
What is the main guidance of the King Report?
- integrated reporting aligning with pure capitalism
- maintaining effective governance as best practise evolves.
- increasing compliance requirements
- risks and opportunities from emerging technologies
- voluntarily applied.
