4. Other Governance Issues

Question 1

Outline the corporate governance approach in the US

Answer 1

Adopts a rules-based approach to corporate governance. Sarbanes-Oxley Act 2002 was enacted:

• Majority independent directors
• AC, compensation committee and NomCo
• Auditor independence, restricting non-audit services, audit partner rotation
• CEO and CFO to certify quarterly and annual reports

Question 2

Outline the corporate governance approach in South Africa

Answer 2

Hybrid approach – created the ‘stakeholder inclusive’ approach – King IV – apply and explain – places accountability on organisations to attain four governance outcomes: PACT > sustainable organisations + corporate responsibility and ethics

1. performance and value creation in a sustainable manner;
2. adequate and effective controls;
3. culture and effective leadership; and
4. trust, good reputation and legitimacy with stakeholders.

Question 3

Outline the corporate governance approach in Germany and China

Answer 3

Two-tier board system (also China) - Supervisory board – A board of NEDs with the responsibility of oversight of the management board - Management board – A board of executive managers with the responsibility for the operational performance of the business

Concentration of share ownership in large listed companies - Germany’s Stock Corporation Act 2016, provides that the supervisory boards of large listed companies i.e. 2000+ employees, are elected 50% by the company’s employees and 50% by the company’s shareholders. This is to protect minority shareholders and to stop unfavourable contracts being imposed on the company by its major shareholder.

German Code (2017) consists of three types of provisions which applies to all listed companies:
• Legal stipulations that oblige the company to follow applicable law.
• ‘Shall’ recommendations, which follow the comply or explain regime.
• ‘Should’ suggestions, where companies do not need to disclose their deviation from them.

The commitment of companies to corporate governance practices are judged by their application of the ‘shall’ recommendations.

Question 4

Outline the corporate governance approach in Scandinavia i.e. Norway, Finland, Iceland, Denmark and Sweden

Answer 4

Law supports supremacy of dominant majority shareholder – but they can be liable for any reckless behaviour or in decision making or coercing for their benefit – one tier of board of directors, but also management structure can either be the CEO or a group of senior executives

Question 5

What are the Nolan Principles? OOH LISA

Answer 5

1. Objectivity
2. Openness
3. Honesty
4. Leadership
5. Integrity
6. Selflessness
7. Accountability

Question 6

Outline the Charities Code.

Answer 6

The Code is split into two - providing a set of guidelines for larger charities i.e. income over 1M and separate set for less than 1M

Charities Code – apply or explain – similar principles to Nolan - BOOILED

1. Board effectiveness
2. Openness and accountability
3. Organisational Purpose
4. Integrity
5. Leadership
6. Equality, Diversity and Inclusion
7. Decision making, risk and control

Question 7

Outline the key issues in corporate governance

Answer 7

• Composition of boards
• Financial reporting
• Stakeholder relations
• Corporate culture
• Social responsibility and sustainability
• Sexual harassment in the workplace
• Remuneration
• Shareholder dialogue
• Risk management