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BTF > Corporate Governance > Flashcards

Corporate Governance Flashcards

1
Q

What is the UK corporate governance code?

A

A code of practice embodying a shareholder-led approach to corporate governance

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2
Q

Who does the UK corporate governance code apply to?

A

All premium listed companies

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3
Q

Is the UK corporate governance code
a legal requirement?

A

No

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4
Q

What happens if companies don’t comply with the UK corporate governance code?

A

Must explain on their annual report

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5
Q

5 Sections of UK Corporate Governance Code

A

{DRAB C}

  1. Division of responsibilities
  2. Remuneration
  3. Audit, risk and internal control
  4. Board leadership + company purpose
  5. Composition, succession and evaluation
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6
Q

Board leadership and company purpose: What are the responsibilities of the board?

A

{C BEER}

Creating shareholder wealth

Benefiting community
Effective
Entrepreneurial
Responsible for: company’s long term success

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7
Q

UKCGC: Board responsibilities

A

Considering success

Stakeholder engagement

Set purpose values and strategy
Align culture to them
Directors should set example

Meet and measure performance
Risk assessment and mitigation
Internal controls

Support values with policies + procedures
Ability for workforce to communicate concerns

Meet regularly
With formal agenda

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8
Q

UKCGC: Annual statement should include

A

How board operates

Which type of decisions taken by board and which are delegated to management

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9
Q

Board attitude to shareholders

A
  1. Satisfactory dialogue
  2. Equal access to info
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10
Q

Types of board members

A
  1. Chair
  2. Senior independent director
  3. Non-executive director
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11
Q

Chair responsibilities

A

Discuss governance and strategy with major SHAREHOLDERS

Communicate to BOARD

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12
Q

Senior independent director responsibilities

A

Attend sufficient meeting w. range of major shareholders
Develop balanced understanding of issues and concerns

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13
Q

Non-executive directors responsibilities

A

Opportunity to attend scheduled major shareholder meetings
Attend when requested by major shareholders

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14
Q

What % of shareholders disagreement against board recommendation vote = effective action must planned and communicated to consult with shareholders over the issue?

A

20%

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15
Q

Which members of the board does the annual report have to identify?

A
  1. Chair
  2. Deputy chair (if applicable)
  3. Chief executive
  4. Senior independent (non-executive) director
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16
Q

Who is below the chief executive?

A

Executive directors

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17
Q

Who is below the chair?

A

Non-executive directors (NEDs)

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18
Q

What are executive directors responsible for?

A

Managing day to day business

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19
Q

What are NEDs responsible for?

A

Constructively challenge and help develop proposed strategies

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20
Q

Requirements of new chair

A
  1. Independent
  2. Different to chief executive
    Can’t become later and vice versa
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21
Q

Duties of the chair

A

{PEES}

Promoting openness and debate

Ensuring directors recover accurate timely and clear info

Effective shareholder communication

Setting the board’s agenda

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22
Q

NED responsibilities

A

Review financial controls and risk management

Appoint/remove/set remuneration of executive directors

Monitoring performance
Monitor reporting of performance

Meet chair without executive directors

Meet without chair present at least annually to appraise chair’s performance

Submit chair concerns to board on resignation

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23
Q

Appointments to the board requirements

A
  1. Formal, rigorous, transparent appointment process
  2. Objective, on merit, diversity considered
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24
Q

Who should be on nominations committee?

A

Over 50% members should be independent non-executive directors

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25
Q

What should NEDs be appointed for?

A

Specified terms
Subject to reelection

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26
Q

After how long service should NEDs receive a rigorous review?

A

6y

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27
Q

Who can chair the appointments committee?

A

The chair
Or a NED

The chair can’t chair the committee for their successor

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28
Q

Should the chair and members of the nomination committee be reported in the annual report?

A

Yes

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29
Q

How is director’s performance measured?

A

Annual evaluation
Formal and rigorous
Including committees and individual directors

30
Q

How should the chair act on the annual director evaluation?

A

Proposing appointments/resignations

31
Q

How is each director evaluated in the annual review?

A

Effectiveness of contribution
Time commitment

32
Q

What should the chair ensure all directors do?

A

Continually update their skills

33
Q

What do all directors have to commit to the company?

A

Sufficient time to discharge their responsibilities

34
Q

What restrictions do executive directors have?

A

Can’t become chair of premium listed company

Can’t have more than one NED role in a premium listed company

35
Q

Can a chair chair more than one premium listed company?

A

Yes

36
Q

What do the chair and NEDs have to disclose to the board before appointment and inform if it significantly changes?

A

Other significant commitments

37
Q

Who’s significant commitments must also be disclosed in the annual report?

A

The chair’s

38
Q

Does the board’s responsibility to present fair, understandable and balanced documents apply just to financial statements?

A

No

It also covers all price sensitive information e.g. interim reports, reports to regulators

39
Q

What should the directors do in the annual report?

A
  1. Confirm responsibility for preparing annual report and accounts
  2. Confirm whether true and fair view of company
  3. Confirm going concern
    Report any material uncertainties about it
  4. Confirm they have assessed principal risks robustly
40
Q

Should the board maintain sound risk management and internal control systems?

A

Yes

41
Q

How often should the board review the effectiveness of internal control systems?

A

At least annualy

42
Q

Purpose of the audit committee

A

Establishing formal and transparent arrangements for maintaining an appropriate relationship with the C’s auditors

43
Q

Who should be on the audit committee?

A

At least three NEDs if a premium listed company
At least two if a smaller listed company

At least one member must have recent and relevant financial experience

In smaller companies the board chair may be a member as well as NEDs

44
Q

Who must chair the audit committee?

A

A NED

Can’t be the chair

45
Q

What should the annual report disclose in terms of members of the audit committee?

A

Chair and members

46
Q

What do the responsibilities of the audit committee cover?

A
  1. Financial statements
  2. Financial controls
  3. The external auditor
  4. Whistleblowing
47
Q

Audit committee: Financial statements responsibilities

A

Reviewing integrity
Formal announcements of performance

Reporting of fairness, balance and understandability when requested

48
Q

Audit committee: Financial controls responsibilities

A

Reviewing internal controls

Reviewing effectiveness of internal audit function or considering starting one

49
Q

Audit committee: External auditor responsibilities

A

Recommending appointment, re-appointment, removal

Approve remuneration

Monitor independence and provision of non-audit services

50
Q

Audit committee: Whistleblowing responsibilities

A

Reviewing process
Incl investigating and following up staff concerns

51
Q

Directors remuneration requirements

A

Enough to attract retain and motivate

Not more than necessary

52
Q

Who should set executive director’s remuneration?

A

Remuneration committee

53
Q

Who should set executive directors’ remuneration?

A

The board

54
Q

How should executive directors’ remuneration be set?

A

To promote long term success of company

Performance-related elements should be transparent and rigorously applied

55
Q

How should NED remuneration be set?

A

Reflecting time commitments and responsibilities of role

Should not include performance related elements or share options

56
Q

When is executive director remuneration shareholder approval needed?

A

Invited specifically to approve all new/changed long-term incentive schemes

57
Q

When is NED remuneration shareholder approval needed?

A

If share options granted
(approval needed in advance)

58
Q

NED share options rule

A

Must be held until at least 1y after leaves board

59
Q

Can a director ever be involved in setting their own remuneration?

A

No

60
Q

Remuneration committee: For who?

A
  1. Chair
  2. Executive directors
  3. Senior management
61
Q

Who should be on the remuneration committee?

A

At least 3 NEDS if premium LC
At least 2 NEDS if smaller

62
Q

Can the chair be a member of the remuneration committee?

A

Yes

63
Q

What counts as a smaller listed company?

A

Sub FTSE 350

64
Q

Who must chair the remuneration committee?

A

A NED

Can’t be the chair

65
Q

Which remuneration committee members must be reported?

A

Chair and members

66
Q

Who is ultimately responsible for corporate governance?

A

The board of directors

67
Q

Which 3 parties provide assistance to the board in relation to corporate governance?

A
  1. Institutional shareholders
  2. External auditors
  3. Internal auditors
68
Q

Institutional shareholders’ responsibility to corporate governance

A

Engage with companies to:
1. Provide long term returns
2. Exercise governance responsibilities efficiently

69
Q

External auditors’ governance
responsibilities

A

Report on (listed) C’s compliance with:
1. UK Corporate Governance Code
2. Directors’ remuneration report

70
Q

Internal auditors’ governance responsibilities

A

Reviewing internal control and risk assessment systems

71
Q

Purpose of an external audit

A

Confirm true and fair view of financial performance and position

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