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SBL > Chapter 3 - Impact of corporate governance on strategy > Flashcards

Chapter 3 - Impact of corporate governance on strategy Flashcards

1
Q

Define corporate governance

A

The system by which organisations are directed and controlled

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2
Q

Provide some core principles of corporate governance:

A
  • Integrity - straightforward dealing, honestly
  • Fairness - respecting rights of other groups
  • Transparency - open and clear disclosure
  • Accountability - answer for consequences of actions
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3
Q

How does a principles approach work?

A
  • UK based
  • Broad principles
  • Comply or explain why non-compliant
  • Deviations require disclosure
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4
Q

How does a rules approach work?

A
  • US based - S-Ox
  • Compliance is required
  • Pass or fail
  • Requires third party to enforce rules
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5
Q

What are the advantages of a principles based approach?

A
  • Greater flexibility - cost savings
  • Applies across different legal jurisdictions
  • Forces boards and shareholders to think about consequence of governance
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6
Q

What are the disadvantages of a principles based approach?

A
  • So broad that of very little use as a guide
  • Investors cannot be certain of consistency
  • Incorrectly viewed as voluntary
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7
Q

What are the advantage of a rules based approach?

A
  • Easy compliance - unambiguous

- Constant minimum standard for investor confidence

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8
Q

What are the disadvantages of a rules based approach?

A
  • No leeway or deviation allowed

- Enforcement can be difficult if not covered explicitly in rules

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9
Q

What are the board responsibilities?

A
  • Monitor CEO
  • Oversee strategy
  • Monitor risks, control systems
  • Manage potential conflicts of interest
  • Ensure effective communication of strategic plans
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10
Q

What are the responsibilities of the chair?

A
  • Leadership to board
  • Ensure board receives accurate and timely info
  • Ensure effective communication with shareholders
  • Meet NEDs without executives present
  • Encourage active engagement by members
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11
Q

What are the responsibilities of the CEO?

A
  • Provide leadership to business
  • Provide accurate and timely info
  • Communicate with significant stakeholders
  • Co-operate with board members
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12
Q

What is a unitary board?

A

Board structure with one board of directors

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13
Q

What are the advantages of a unitary structure?

A
  • All participants have equal legal responsibility for management
  • Easier co-operation
  • Presence of NEDs lead to better decisions
  • NEDs less likely to be excluded
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14
Q

What are the disadvantages of a unitary structure?

A
  • An NED cannot be expected to both manage and monitor
  • Time requirements on NEDs
  • No provision for employees to be represented on board
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15
Q

What is the structure of a multi-tier board?

A
  • Supervisory board with no executive function - reviews direction and strategy
  • Management/executive board - entirely executives responsible for running business
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16
Q

What are the advantages of a multi-tier board?

A
  • Clear separation of duties
  • Supervisory board is an effective guard against management inefficiency
  • Encourages transparency
17
Q

What are the disadvantages of a multi-tier board?

A
  • Confusion over authority - lack of accountability
  • Management board may restrict information passed to supervisory board
  • Supervisory board may not be as independent as wished
18
Q

What are the different committees?

A
  • Audit committee - liaising with external audit, supervise internal audit
  • Remuneration committee
  • Nominations committee - new directors
  • Risk committee
19
Q

What are the roles of NEDs?

A
  • Strategy
  • Risk
  • Scrutiny
  • People - remuneration
20
Q

What is the purpose of directors’ remuneration?

A
  • Attract and retain individuals of sufficient calibre

- Motivate them to achieve performance in best interest of shareholders

21
Q

What is an insider system?

A

When companies are owned by a small number of dominant investors e.g. family owned

22
Q

What are the advantages of insider systems?

A
  • Establish ties between owner and manager - agency problem reduced
  • Easier to influence management
  • Smaller base of shareholders - longer term view
  • Culture
23
Q

What are the disadvantages of insider systems?

A
  • Discrimination against minority shareholders
  • Don’t develop formal governance until forced to
  • Reluctant to employ outsiders
  • Misuse of funds
24
Q

What are the advantages of outsider systems?

A
  • Separation of ownership and management - governance structure
  • Shareholders have voting rights
  • Hostile takeovers - threat acts as discipline for management
25
Q

What are the disadvantages of outsider systems?

A
  • More likely to have agency problem

- Larger shareholders - short term priority

26
Q

What are the value for money 3 E’s?

A
  • Economy - inputs of appropriate quality at lowest price
  • Efficiency - delivering service at minimum cost, time, effort
  • Effectiveness - achieving desired objectives
27
Q

What is a QuANGO?

A

A quasi-autonomous non-governmental organisation - it supports government even if not government department

SBL (15 decks)

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