Chapter 11: Governance and ethics Flashcards
What is a governance structure?
The set of legal or regulatory methods put in place in order to ensure effective corporate governance
What is a principles-based approach?
Those countries that wish to adhere to the principles set by the OECD
What does the OECD corporate governance framework cover?
- Promoting transparent and efficient financial markets
- Equitable treatment of all shareholders
- Relationships with Institutional investors, stock markets, and intermediaries
- Rights of stakeholders in corporate governance
- Accurate and timely disclosure and transparency of financial performance
- Responsibilities of the board and accountability to shareholders
What approach do the UK and US take?
More of a shareholder-led approach to governance structures by placing more emphasis on the role of shareholders
What are the two types of board structure?
- Unitary
- Dual Board: Management board and the supervisory board
Companies with more than 2,000 worldwide employees, turnover of more than 200 million globally, and total assets worth more than 2 billion have to do what?
The Companies (Miscellaneous Reporting) Regulations (2018) do require some private companies to include a statement in their annual reports that discloses their corporate government arrangements
Follow on an ‘apply or explain’ basis
What are the Wates Principles?
Voluntary code to help companies meet regulations:
- Purpose and leadership
- Board should include an effective chair and be balanced
- Directors’ responsibilities
- Sustainable success based on identifying opportunities and managing risks
- Remuneration aligned to long term sustainable success
- Meaningful stakeholder engagement
What is business ethics?
The ways in which a company behaves in a society which has certain expectations of how a decent company should behave. They represent the moral standards that are expected by society
What are the possible consequences of poor business ethics?
- Negative publicity
- Loss of customers
- Failure to retain employees
- Falling share prices
What is an ethical culture?
An ethical culture is one where the basic values and beliefs in a company encourage people within the company to behave in line with acceptable business ethics
What are some guiding principles regarding business values?
Nolan principles:
- Integrity
- Objectivity
- Accountability
- Openness
- Honesty
The institute of business ethics:
- Respect
- Transparency
- Fairness
- Openness
- Trust
What are statutory requirements for all companies?
- Equality for all
- No discrimination on any grounds
- Freedom of information
How should the directors provide ethical leadership and lead by example?
- Demonstrate leadership through embodiment
- Recognise the value of culture
- Be open and accountable
- Embed and integrate the values of the company
- Assess, measure and engage the desired outcomes of the business
- Align values and incentives
- Exercise stewardship - engagement about culture and encourage better reporting
What is social responsibility?
How far a company exceeds the minimum obligation it owes to stakeholders and society. It places particular emphasis on those stakeholders that are unprotected by contractual or business relationships
