Chapter 2 - Legal And Regulatory Aspects Of Governance

Question 1

What are the four sources of governance law?

Answer 1

Company law
Financial services and markets law
Insolvency law
Laws on market manipulation

Question 2

How is insider dealing related to corporate governance?

Answer 2

Insider dealing is often carried out by a director or professional advisor.

Question 3

What is the relevance of money laundering to corporate governance?

Answer 3

Money laundering often involves directors.

Question 4

Which companies must apply the UK Code?

Answer 4

Companies with a premium stock exchange listing.

Question 5

Are AIM companies subject the the UK Code?

Answer 5

No but they must state which governance standards they apply.

Question 6

What are the two main requirements of SOX 2002 in relation to corporate governance?

Answer 6

CEOs and CFOs were made personally liable for the accuracy of financial statements.

New rules on financial reporting, including the need to publish an internal audit report.

Question 7

What are the advantages to a rules based approach to governance?

Answer 7

• certain laws are essential to protect stakeholders (e.g. employment law)
• laws are required to punish actions that are so unethical they would be illegal
• regulation restores publish faith

Question 8

What are the advantages of a voluntary governance regime?

Answer 8

• there is no one size fits all solution
• the biggest concerns apply to stock market companies with public shares
• the largest companies are the most problematic, ad can be targeted
• onerous regulation may encourage companies to migrate
• regulation may deter companies from becoming listed.