Chapter 11 Flashcards
Who owns a company?
The shareholders
What do directors do?
We employ directors to run the company
What should directors do within a company?
Act in the best interest of the shareholders
Corporate governance to help this
What is corporate governance described by the ‘Cadbury Commitee’?
the system by which companies are directed and controlled
What are the key roles and responsibilities of the board?
Provide strategic and entrepreneurial leadership
Make key appointments
Set the company’s standards and values
Manage risk and ensure appropriate controls
Ensure appropriate resources are available
Monitor performance of others
Report on board performance
What is the board of directors?
The company’s directors serve together on one board comprising both executive an non-executive directors
Who are non-executive directors (NEDs)?
- Purely to represent the shareholders
- act as a bridge
What are the roles of NEDs?
Strategy
Scrutinising
People
Risk management
What is NED’s independence?
Normally 50:50 split
Small companies must have at least 2 NED’s
Must be independent
What test is done for a NED independence?
Close family or friend
Employee in the last 5 years
Receive any other remuneration from the company
Material business relationship in the last 3 years
Represent a significant shareholder
Serve on the board for over 9 years
What are the other 2 people at the top of a company?
Cheif exec
Chair
What is the role of a Chief Exec?
Runs the company, strategy, day to day stuff
What is the role of a chair?
Runs the board, ensure the implement direction and strategy
Stops the chief exec doing what they want with shareholders money
What are some adv of board structures?
Compliance with corporate governance requirements
Removal of the conflict of interest threat
Clarity of responsibility and accountability
What are some dis adv of board structures?
Increased bureaucracy and complexity
Need to establish an effective working relationship
What other committees are on board?
Nomination committee
Remuneration committee
Audit committee
What is an audit committee?
2 roles:
- oversee the internal audit function
- ensure that the external reporting obligations of the company are met
Who is normally involved in the audit committee?
100% non-exec directors
What is a nominations committee?
- responsible for the appointment of directors, taking into account the requirements of the company and making recommendations to the board.
What is the remuneration committee?
- responsible for setting the rewards of directors
- directors getting overpaid is bad for shareholders
- ensure if they are taking large firms they are earning it
- set targets for performance
- bonus levels
What is an external audit?
an independent examination of the financial statement to see whether it gives true and fair view of company’s affairs
What are internal auditors?
an independent activity, established by management, to examine and evaluate organisational risk management processes and control systems and make recommendations for improvements
Who is involved in the remuneration committee?
Mix of non-exec and exec, majority of non -exec
What are the roles of a nomination commitee?
- Recommend appointments to the board
- review balance of NEDs and exec directors
- review diversity
- Prepare directors job description
- succession planning
