9: Governance and Ethics

Question 1

3 impacts of poor governance?

Answer 1

Falling share price

Corporate failure

Criticism of accountants or auditors

Question 2

What is the agency problem?

Answer 2

Managers should run the company in the interest of the shareholders

Problem occurs when managers pursue their own objectives instead

Good corporate governance should align the objectives of management with those of the shareholders

Question 3

Define corporate governance?

Answer 3

A set of relationships between a company’s management, its boards, etc

that provides the structure through which the objectives of the company are set, attained and monitored

Question 4

What are the four perspectives on corporate governance?

Answer 4

From wider to narrower view:

• public policy perspective
• stakeholder perspective
• corporate perspective
• stewardship perspective

Question 5

What is CSR?

Answer 5

Concept that integrates social and enviro concerns in operations and stakeholder interactions

Question 6

What ideas does SASB embed?

Answer 6

Sustainable and ethical compensation

Supply chain management

Oversight of board

Engagement of shareholders on ESG

Ethical conduct

Question 7

What are the three elements of financial systems?

Answer 7

Intermediaries: banks, pension funds

Securities: shares and bonds

Markets: primary and secondary, capital and money

Question 8

Describe the two financial systems?

Answer 8

Bank-based
- lending is most important source of business finance
- banks are highly concentrated and integrated
- stock markets are volatile and speculative
- heavy regulation

Market-based
- markets are more important than banks for long term finance
- banks less close, less integration
- stock markets bigger and more effecient
- less regulated

Question 9

What are Hofstede’s 6 key dimensions of national culture?

Answer 9

Power distance

Uncertainty avoidance

Individualism and collectivism

Masculinity/femininity

Long-term orientation

Indulgence verses restraint

Question 10

What are the OECD principles?

Answer 10

Promoting transparent and efficient markets

Equitable treatment of all shareholders

Relationships with investors

Rights of stakeholders in corporate governance

Accurate and timely disclosure and transparency of financial performance

Responsibilities of the board and accountability to shareholders

Question 11

What are the two types of board structure?

Answer 11

Unitary board

Dual board
- management board (runs the company)
- supervisory board (everything else)

Question 12

What do the Companies Miscellaneous Reporting Regs 2018 require?

Answer 12

Disclosure corporate governance if they meet at least one of the following:
- more than 2000 employees worldwide
- turnover >200m globally
- Total assets >2bn

Question 13

What are the six Wates principles?

Answer 13

Help large companies meet governance regs (voluntary):

• purpose and leadership
• board
• directors responsibilities
• opportunities and risks
• remuneration
• stakeholder engagement

Question 14

5 Nolan principles?

Answer 14

Integrity
Objectivity
Accountability
Openness
Honesty

Question 15

5 institute of business ethics principles?

Answer 15

Respect
Transparency
Fairness
Responsibility
Trust

Question 16

What three ethical values are statutory for companies?

Answer 16

Equality for all

No discrimination on any grounds

Freedom of information

Question 17

What is part of the definition of corporate governance?

Answer 17

Must also specify how corporate governance objectives are set

Question 18

What does the stewardship approach entail?

Answer 18

Requires directors at all times to act in the best interest of the company

That is the primary purpose

Question 19

Two examples of national culture traits?

Answer 19

Bureaucratic business is an indicator of high uncertainty avoidance

Junior staff having a say in the running of the business is evidence of low power distance

Question 20

What is the best thing a board can do to improve ethical culture?

Answer 20

Demonstrate leadership