C4 OECD Principle Flashcards
OECD principles of CG
Organisation for Economic Cooperation and Development
Non binding principles
Intends to assist gov to develop regulatory framework for CG
provides governance for stock exchanges.
Principles can also apply to private company as well as state owned
OECD grouped into 5 categories
- Rights of sh
- Equitable treatment of sh
- Role of stakeholders
- Disclosure and transparency
- Responsibility of thr board
CG codes across different countries are
- Sarbanes oxley act= US
- Greenbury report, cadbury report= UK
- King report= South Africa
- Singapore = code of CG
Corporate governance principles
- Leadership: proper division of responsibility
- Effectiveness: competent leaders with skill and experience
- Accountability: collective responsibility
- Disclosures: timely disclosure of major financial and non financial information
- SH rights: continuous engagement and voting rights
- Stakeholder interest: understanding different interests
Leadership
Division of responsibility between chairman and CEO
Chairman leads overall board
CEO leads executive board
Board consist of ED and NED
ED is in charge of operations and decision making
NED is in charge of constructively criticise Ed decision making
Responsibilities of Chairman
Ensure effectiveness of board by good leadership
Setting agenda
Good relationship between NED and ED
Meet NED without ED
Ensure participation of all members
Board receives accurate and timely information
Responsibility of CEO
Cooperate with all members of board
Cooperate with induction and development
Cooperate with necessary resources
Provide leadership to business to operations
Setting strategy
Effective implementation of board decisions
Board responsibilities
- Monitoring CEO
- Monitoring risk, internal control system
- Manage conflict of interest
- Oversee strtegy
- Effective communication of its plan internally and externally
Key issues regarding board membership
- Size: balance in the need for varied opinion and need for unity in decision making
- Diversity: gender, race, ethnicity
- Insider/ outsider mix: EDs and NEDs
Knowledge and skill of board
Should extend their knowledge and skill continuously
Induction training: is required to understand business, market, staff
Require CPD: continuous professional development
Accountability
A) appraisal:
Board performance appraisal will increase its effectiveness
Director must be individually appraised
All directors must be subjected to regular reelections
B) timely disclosure
Subcommittees
Are responsible for supervising specific areas of governance. They are
1. Audit committee
2. Remuneration committee
3. Nomination committee
4. Risk committee
NEDs
Doesnot have any managerial/ executive roles or responsibilities
Bring an independent view as they are not full time employees
Should represent SH interest to minimise agency issue
Roles of non executive directors
- Strategy: contributes and challenges directions of strategy
- Risk: NED should confirm accuracy of fs, ic systems
- Scrutiny:scrutinise performance of management in meeting goals and objectuve
- People: NEDs are responsible for deciding appropriate level of remuneration and imp role in appointments and removal of senior management
Purpose of director remuneration
Attain and retain personnel with sufficient callibre
Motivate them to achieve targets that are both in 8t interest as well as personal
