Chapter 11: Governance and ethics

Question 1

What are the symptoms of poor corporate governance?

Answer 1

• Domination of the board
• No involvement by the board
• Inadequate control function
• Lack of supervision of employees
• Lack of independent scrutiny by external or internal auditors
• Lack of contact with shareholders
• Focus on the short-term profitability
• Misleading FSs and information

Question 2

What is governance?

Answer 2

Governance is the system by which an organization is directed and controlled so that its objectives are achieved in an acceptable and sustainable manner.​

Question 3

What are some aspects of good practice in corporate governance?

Answer 3

• Risk mgt and good internal controls
• Ethical & sustainable pursuit of the business’s strategy to ensure long-term success
• Openness & transparency in disclosing information
• Accountability
• Integrity and probity
• Reducing the potential conflicts
• Reconciling the interest of shareholders and directors as far as possible

Question 4

What is the difference between governance and management?

Answer 4

• Governance: doing the right things (Wh-questions)
• Management: doing the things right (How-question)

Question 5

What are some key elements of good CG?

Answer 5

• Board of Directors: ED ( & NED, Committee
• Senior managers: put into effect the decisions of the board & whistle-blow on the company’s activity
• Shareholders: proactive at the meetings
• External auditors
• Internal auditors: report to AC
• Corporate values and culture
• The workforce

Question 6

What are some factors to classify banked-based system and market-based system?

Answer 6

• asset holding preference of households
• domination of financial intermediaries
• direct (gắn với market-based) vs indirect (gắn với bank-based)
• sources of funds: debt (bank-based) or equity (market-based)

Question 7

What are the characteristics of bank-based financial systems?

Answer 7

• households prefer to bear little risk & hold cash like deposits with banks
• households have less access to investment in physical assets
• households invest in securities via intermediaries, eg: pension funds & mutual funds
• more government regulation
• banks are highly integrated and concentrated
• main source of finance: bank lending
• close relationship between banks & business, cross-holding
• markets: volatile & speculative

Question 8

What are the characteristics of market-based financial systems?

Answer 8

• households prefer to bear more risk & hold equity more than deposits
• households have greater access to investment in physical assets
• high level of indirect investment in securities via intermediaries, eg: pension funds & mutual funds
• unregulated comparatively
• highly fragmented less integration of bank and non-bank services
• markets are more important than banks
• less close relationship between banks & business, cross-holding