Chapter 3 - Corporate Governance

Question 1

Non-Exec Directors (NEDs) duties

Answer 1

• Attend and participate in board meetings
• Scrutinise actions of Exec directors
• Make up majority 3 sub-committees
• Should carry out due dilligence on company before appointment

Question 2

Advantages of NEDs

Answer 2

• more objective
• external experience
• challenge strategy
• conduct ‘performance monitoring’ - comfort to shareholders

Question 3

Audit Committees

Answer 3

• At least 3 NEDs, one with relevent finance experience

Internal Control

• Review effectiveness internal audit - appoint head
• Review internal controls / Risk management

External Control

• Monitor integrity financial statements
• Recommend external auditor (and their renumeration)
• External auditors independence, objectivity, effectiveness
• Review auditors “letter of weakness”
  
  • ensure acted upon

Question 4

UK Corporate Governance Code

Answer 4

Leadership

• effective board
• different CEO/Chairman
• NEDs should scrutinise/challenge

Effectiveness

• Skills/experience
• Board meeting agenda, minutes, reports
• majority NEDs (FTSE 350)
• formal/transparant nominations procedure new directors
• allocate sufficient time
• directors receive induction
• re-election every 3 years

Accountability

• Risk managment
• Annual report
• Have internal audit (or re-assess annually)
• Audit committee

Directors renumeration

• performance related pay - goal congruence
• formal transparent procedure
• renumeration committee
• measured by factors can control

Relations with shareholders

• AGM
• Communication

Question 5

CIMA Code of Ethics

Answer 5

• Integrity - straightforward + honest, fair dealing
• Objectivity - avoid bias / conflict of interest
• Prof. competance + due care - required knowledge, keep up to date
• Prof. behaviour - laws / regulation
• Confidentiality
  
  • public interest
  • protect members reputation
  • required by law
  • money laundering

Question 6

Ethical conflicts

Answer 6

• Self-interest
• Self-review
• Advocacy
• Familiarity
• Intimidation

Question 7

Resolving ethical dilemma

Answer 7

• Check facts
• Raise internally - HR director/chairman, other NEDs, audit committee
• Raise externally - CIMA / Solicitor
• Remove self e.g. resign