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Coprorate Governance Flashcards

1
Q

What is Corporate Governance?

A

It is the principals and processes by which organisations are operated, regulated and controlled to achieve their overall objectives.

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2
Q

What are the 3 reasons for the need of good coporate governance?

A
  1. To ensure the interests of directors and shareholders do not conflict.
  2. To achive an appropriate balance between the interests of different stakeholders
  3. For investor confidence and capital markets
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3
Q

What is Agency theory?

A

The view that there is an agency relationship between the board of directors and the companies shareholders.

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4
Q

What are the 4 potential conflicts that arise from a separation of ownership and control of a company?

As part of agency theory

A
  1. Moral Hazard
  2. Time horizon
  3. Retained earnings and dividends
  4. Effort
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5
Q

In agency theory, what is the conflict of moral hazard?

A

When directors have a personal interest in their status as directors. They may be inclined to persue strategies to increase the company size, to boost their own status, even if it is not in the interests of the shareholders.

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6
Q

In agency theory, what is the conflict of Time Horizon ?

A

When directors do not hold shares in the company, they may be inclined to seek short term profits rather than long term susutainability and goals.

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7
Q

In agency theory, what is the conflict of Retained earnings and dividends?

A

When there is conflict of interest between directors who want to retain earnings for investment and shareholders who want to profits paid as dividends.

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8
Q

In agency theory, what is the conflict of effort?

A

That when directors do not own shares in the company, they may lack the same drive that entrepreneurs give to their business.

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9
Q

What are the measures shareholders can take to reduce agency risks?

A
  1. Monitor the performance of the board. for example, through annual reports, accounts and general meeting.
  2. Provide incentives for the board such as remuneration, bonus scehemes and share options.
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10
Q

What are the 3 stakeholder groups?

A
  1. Internal stakeholders
  2. Connected stakeholders
  3. External stakeholders
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11
Q

Name some examples of possibel internal stakeholders?

A

Possibly:
* Executive directors
* Employees
* Management

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12
Q

Name some examples of possible connected stakeholders?

A
  • Shareholders
  • Non-executive directors
  • Customers
  • Suppliers
  • lenders
  • Auditors
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13
Q

Name some examples of possible external stakeholders?

A
  • Tax authorities
  • Stock exchange
  • Pressure groups
  • General public
  • Media
  • Other institutions
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14
Q

What are the general principals of good governance that apply to all large organisations?

A
  • Integrity
  • Accountability
  • Transparency
  • The public good
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15
Q

How Many OECD principals of corporate Governance are there? And what do they focus on?

A

There are 6 principals that focus on the rights of shareholders, the free market and responsibilities of directors.

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16
Q

What are the four approaches to corporate governance?

A
  1. Shareholder value approach
  2. Stakeholder approach
  3. Enlightened shareholder approach
  4. Voluntary and statutory approaches
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17
Q

What is the shareholder value approach to corporate governance?

A

The borard of directors should seek to maximise the wealth of the shareholders.

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18
Q

What is the stakeholder approach to corporate governance?

A

A company should seek a balance between economic goals and social goals.

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19
Q

What is the enlightened shareholder approach to corporate governance?

A

The board of directors should act in the interests of the companies shareholders, but also have some condieration for other stakeholders.

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20
Q

What 5 Corporate Governance issues are addressed by the UK code?

A
  • Board leadership & company purpose
  • Division of responsibilities
  • Composition, succession and evaluation of the board
  • Audit, risk and internal control
  • Remuneration
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21
Q

What does a company board typically consist of in the UK?

A
  • The board chair (Chairman)
  • The Chief executive officer
  • Other executive directors (e.g CFO)
  • Non-executive directors
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22
Q

The main role of a board of directors is:

A: Provide effective leadership
B: Manage the finances of the company
C: Appoint management
D:Maximise shareholder wealth

A

A: Provide effective leadership

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23
Q

Companies in the UK have Unitary boards, what does this mean?

A

Comapnies in the UK have 1 board of directors.

As opposed to Dual board systems like Germany.

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24
Q

The Uk code of governance states that there should be a division of reponsibilities. Who are these reponsibilities divided between?

A

There should be a clear division of responsibilities between the leadership of the board and the executive leadership of the business(its management).

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25
Decisions involving major investments or business decisions should be taken by: A: The board B: The management
A: The board
26
What are some examples of company decisions that would be taken by the board and not the management?
* Approval of companys overall purpose, strategy and objectives * Approval of long term business plans, capital expenditure and annual budgets * Approval of major contracts, large capital expenditure and aquisitions * Deciding the risk appetite for the company * Oversight of accounting, planning, risk management and internal control systems * Oversight of compliance with legal and regulatory requirements * +many more
27
What were some of the risks that lead to the seperation of board chair and CEO?
* That one individual will become all powerfull and make most/all of the important decisions themselves. * That one all powerfull individual will make decisions for personal benefit rather than in the interests of the company.
28
How is the risk of a company and its board being dominated by one person reduced?
By seperating the role of board chair and CEO.
29
What is the role of the CEO?
The CEO is the head of the management team and acts as a link between the board of directors and management.
30
Who is the CEO accountable to?
The board of directors.
31
What is the role of the board Chair?
The chair holds responsibility for leading the board and ensuring its effectivness in directing the company.
32
What are 5 of the main responsibilities of the Chair of the board?
* Demontrate objective judgement throughout their tenure * promote a culture of openness and debate * Facilitate contructive board relations * Ensure directors recieve accurate, timely and clear information * Ensure effective communication with shareholders
33
True/false: According to the uk code of governance, the Chair of the board should be independent when first appointed. (IE not held the position of CEO first)
True
34
What is meant by 'Non-Executive' directors?
They do not hold a management position in the company and are part time.
35
What is a Senior independant director?
It is one of the Non-Executive Directors who have been appointed to lead the NED's.
36
What are the 3 main roles of a non-executive directors?
* Provide contructive challenge and strategic guidance * Offer specialist advice * Hold management to account
37
What are the roles of the Senior Independant Director
* Providing a sounding board for the chair. Ie serve as an intermidiary between other directors, shareholders and the chair. * Make themselves available to shareholders * Lead the non-executive directors at meetings
38
A director is in breach of statutory breach of duty. Who can bring legal action?
Only the company itself. In practice this is the other directors of the company.
39
What is the rule on in the UK Code on the overall size of a board of directors? A: Must be 2 or more B: Must be 3 or more C: There is no rule D: Must be exacty 4
C: There is no rule
40
What are the 3 principals around the composition of a board of directors?
* A board should have an appropriate balance of skills, experience, independence and knowledge of the company * The board should be sufficient size to meet the needs of the company * There should be an appropriate combination of executive and non- executive directors
41
How much of the board of directors should be non-executive and independent?
At last half of the board excluding the chairman for. Except for smaller companies.
42
How many independant non-executive directors should a smaller company have? | Smaller means outside of the FTSE 350
Atleast 2
43
The UK Corporate governance code requires a board to establish which 3 specific committees?
1. Nomination Committee 2. Remuneration Committee 3. Audit Committee
44
Who leads the process for board appointments and recommendations?
The Nominations Committee
45
Each year the UK code requirs a formal and rigourous evaluation of the performance of which of the following? A: The Board B: The Board Committiees C: The Chair D: Individual directors I) A & B II) C III) C & D IV) All
IV) All
46
In the evaluation of the board, the UK code suggests that evaluation should consider what 3 points?
1. The balance of skills, experience, independence and knowlegde of the board and its diversity 2. How the board works together as a unit 3. Any other factors relevent to its effectiveness
47
What are individual board member evaluated on?
1. Attendance at board and committee meetings 2. The quality of their contribution at those meetings.
48
What is a business risk?
Risk that arises from the possibility that actual events or outcomes in the future will differ from what is expected.
49
What are the 6 elements of an effective risk managmemt system?
1. A risk awareness culture 2. Risk identification and awareness 3. Risk assessment 4. Risk managment action/measures 5. Information and communication 6. Monitoring
50
UK Code requires listed companies to have an audit committee, what are its 3 main responsibilities?
* Monitoring the integrity of the financial statements * Monitoring the effectiveness of the companies risk managment and internal control systems * The companies relationship with external auditors
51
What are the means of achieveing public sector objectives?
* Enacting legislation or regulations * delivering services * redistriubuting income by means such as taxation and social security benefits * ownership and control of assets or businesses, such as state owned enterprises
52
What are the main interests of the stakeholders of public sector organisations?
* Whether the planned outputs have been delivered and outcomes achieved * Whether this has been done in an economical, efficient, effective and fair way
53
What is principal A of the CIPFA framework for corporate governance?
Behaving with integrity
54
What is principal B of the CIPFA framework for corporate governance?
Ensuring openness and comprehensive stakeholder engagement
55
What is principal C of the CIPFA framework for corporate governance?
Defining Outcomes | in terms of sustainable economic, social and environmental benefits.
56
What is principal D of the CIPFA framework for corporate governance?
Determining the interventions . | necessary to optimise the achievement of these outcomes
57
What is principal E of the CIPFA framework for corporate governance?
Developing the entities capacity | Including the capability of its leadership and other people within.
58
What is principal F of the CIPFA framework for corporate governance?
Managing risks and performance | Through robust internal control and strong financial management.
59
What is principal G of the CIPFA framework for corporate governance?
Implementing good practices in transparency, reporting and audit | In order to deliver effective accountability.
60
What are the 7 Nolan principals applicable to holders of public office?
1. Selflessness 2. Integrity 3. Objectivity 4. Accountability 5. Openness 6. Honesty 7. Leadership
61
Each government department has an Acounting Officer (AO). What are they responsible for?
The organisation and quality of managemnt in the department and its use of public mooney and stewardship of assets.
62
Government departmental boards should meet at least how often? A: Anually B: 6 Monthly C: Quarterly D: Once a week
C: Quarterly
63
Government departmental boards give advice on which 5 areas?
1. Strategic clarity 2. Commercial sense 3. Talented people 4. Results focus 5. Management information
64
Government departmental boards should have which 2 committees?
1. An audit and risk assurance committee 2. A nominations and governance committee
65
Who should chair a government departmental board?
The Secretary of State
66
Who is on a governmental department board?
* Secrtary of State * Junior ministers * Senior Civil Servants in the department * At least 4 non-executive board members
67
What are the 4 main areas of focus for a non-executive board member in a government department board?
* Performance & operational issues * advising on key performance indicators * Operational & delivery implications of policy proposals * The effectivness of management
68
What are the 4 civil service values?
1. Integrity 2. Honesty 3. Objectivity 4. Impartiality
69
How many sepecial advisors may a government cabinet minister appoint?
2
70
How many independent NED's should be on the nominations committee? A: 2 B: More than 2 C: A majority D: Half
C: A majority
71
Can an independent NED Chair the nominations committee?
Yes
72
How many independent NED should a remunerations committee have? A: Atleast 3 B: Atleast half C: 2 or more D 1 or more
A
73
True/False: The remuneration committee chair must have served on the remuneration committee for at least 6 months.
False. Must be 12 months
74
How many independent NED should a audit committee have? A: Atleast 3 B: Atleast half C: 2 or more D 1 or more
A: Atleast 3
75
A board chair should not remain in post beyond A: 5 years B: Their welcome C: 9 years D: 15 years
C: 9 Years
76
Who takes reposnsibility for declaring a company a going concern? A: The Audiotrs B: Internal Auditors C: The Chair of the board of directors D: The Directors
D: The Directors
77
True/False: The corporate code of ethics should be a fromal document.
True
78
What are 3 benefits of having a code of ethics?
1. Compliance and customer service 2. Managing stakeholder relations 3. Establishing the company as an ethical organisation
79
What are the fundemental ethical principals for accountants?
1. Integrity 2. Objectivity 3. professional competence and due care 4. Confidentiality 5. Professional behaviour
80
Which of the following is not a fundamental ethical principal of the SOPP for accountants? A. Independence B. Objectivity C. professional competence and due care D. Confidentiality E. Professional behaviour
A: Independence
81
What are the 5 threats to an accountants ethics?
1. Self-interest 2. Self review 3. Advocacy 4. Familiararity 5. Intimidation
82
What does Advocacy mean when it comes to threats to an accountants ethics?
When an accountant advocates for a particular cause to the point where objectivity is compomised.
83
To safeguard against threats to ethics, an accountant may: A: Eliminate the circumstances creating the threat B: Apply safeguards to reduce the threat C: Decline or end the professional activity
All 3
84
What governance framework does local government follow?
CIPFA framework
85
Who runs the governing body of a local authority?
It is always the full council of elected councilors.
86
Who is the exceutive in a local authority?
Either: 1. A directly elected mayor or a council leader with a cabinet of elected councilors 2. A committee based system
87
What are the responsibilites of the governening body of a local authority?
1. Agreeing policy framework and key strategies 2. Agreeing the budget
88
What are the responsibilities of the executive of a local authority?
1. Proposing policy framework and key strategies for approval by the governing body. 2. proposing the budget for approval by the governing body 3. Implementing the policy and key strategies
89
Who is an NHS trust governed by?
A board of directors with executive and non-executive directors.
90
What are the 7 principals of a charities governance code.
1. Organisational Purpose 2. Leadership 3. Integrity 4. Decision making 5. Board effectivness 6. Equality, diversity and inclusion 7. Openness and accountability
91
How many non-executive board members should be on a governmental department board?
At least 4

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