Chapter 6 - Corporate governance Flashcards
What is corporate governance?
Means by which a company is directed and controlled
What does corporate governance concern?
- Director’s responsibilities
- Composition of board of director’s
- Internal control
- Necessity for an audit committee
- Relationships with external auditors
What is SOX?
Rules-based approach to corporate governance used in the US
From an organisation’s perspective, what are the positives of a rules-based approach?
- Clarity in terms of future actions
- Standardisation for all companies
- Binding requirements
From a wider stakeholder’s perspective, what are the positives of a rules-based approach?
- Standardisation across all companies
- Sanction
- Greater confidence in regulatory compliance
From an organisation’s perspective, what are the negatives of a rules-based approach?
- Exploitation of loopholes
- Underlying belief
- Flexibility is lost
- Checklist approach
From a wider stakeholder’s perspective, what are the negatives of a rules-based approach?
- Regulation overload
- Legal costs
- Limits
- Box ticking rather than compliance
What are the main provisions of the UK Corporate governance code?
- Leadership
- Effectiveness
- Accountability
-Remuneration - Relations with shareholders
What must the board to to comply with provision for leadership?
- Every entity led by an effective board
- Clear vision of responsibilities between chairman and chief exec
- NEDs should challenge and develop strategy
What must the board to to comply with provision for effectiveness?
- Balance of skills, knowledge and experience
- Formal procedure for appointment of new directors
- Directors should receive induction
- Should be supplied with quality and timely info
- Annual evaluation
- Re-election at regular intervals
What must the board to to comply with provision for accountability?
- Provide a fair assessment of entity
- Responsible for determining risks
- Maintain risk management
- Formal and transparent arrangements for corporate reporting and risk management
What must the board to to comply with provision for remuneration?
- Motivate directors to comply
- Link rewards
- Formal and transparent procedure for developing policy on executive remuneration
- No director should be involved in deciding their own remuneration
What must the board to to comply with provision for relations with shareholders?
- Dialogue with shareholders
- Use AGM to communicate with investors
What are the 6 principles in the OECD principles of corporate governance?
- Effective governance
- Rights and equitable treatment of shareholders
- Institutional investors
- Role of stakeholders
- Disclosure and transparency
- Responsibilities of board
What are the intentions of the OECD principles?
To be concise, understandable, accessible to international community
