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Corporate Governance Flashcards

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1
Q

Who are the shareholders according to the Companies Act 2006?

A

Shareholders include those who subscribe to the memorandum of association, those who agree to become members, and those whose names are entered in the register of members.

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2
Q

What are the ‘organs’ of a company?

A

The members (shareholders) and the directors.

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3
Q

What are the key roles of shareholders in a company?

A

Shareholders own the company, are entitled to returns, and take important decisions, such as appointing or removing directors.

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4
Q

What is the primary role of directors in a company?

A

Directors manage the day-to-day business, set the company’s strategy, and oversee the work of other members of the company.

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5
Q

How do shareholders make decisions in private companies?

A

Through written resolutions or meetings.

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6
Q

How do shareholders make decisions in public companies?

A

Through general meetings.

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7
Q

What are the types of shareholder resolutions under the Companies Act 2006?

A

Ordinary resolutions, special resolutions, and the now obsolete extraordinary resolutions.

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8
Q

What threshold is required for an ordinary resolution to pass?

A

A simple majority.

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9
Q

What threshold is required for a special resolution to pass?

A

At least 75% of votes cast.

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10
Q

What does the Companies Act 2006 regulate regarding governance?

A

Actions by shareholders, rules about meetings, and director qualifications.

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11
Q

What is the purpose of shareholder meetings under the Companies Act 2006?

A

To allow shareholders to vote, make statements, and make decisions on company matters.

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12
Q

What rights do shareholders have at meetings?

A

The right to vote in person, by proxy, or through representatives.

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13
Q

What is the quorum requirement for shareholder meetings?

A

A minimum of two shareholders.

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14
Q

What is the role of the chairperson in shareholder meetings?

A

To chair the meeting, usually the chair of the board of directors.

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15
Q

What happens if a company does not have bespoke articles of association?

A

The default model articles apply.

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16
Q

What are the model articles for companies?

A

Rules provided for private companies limited by shares, private companies limited by guarantee, and public companies.

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17
Q

What section requires companies to have articles of association?

A

Section 18 of the Companies Act 2006.

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18
Q

What powers do directors have under model articles?

A

They manage the company and exercise its powers, subject to the articles.

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19
Q

Can shareholders direct the directors to take action?

A

Yes, by special resolution.

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20
Q

What does section 21 of the Companies Act 2006 regulate?

A

Alteration of articles of association.

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21
Q

How can directors delegate their powers?

A

By authorizing committees, individuals, or means specified in the articles.

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22
Q

What statutory provisions regulate directors’ transactions?

A

Long-term service contracts, substantial property transactions, and loans.

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23
Q

Under which section can directors’ acts be ratified?

A

Section 239 of the Companies Act 2006.

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24
Q

What are the statutory provisions for the removal of directors?

A

Sections 168 and 169 CA 2006, and the company’s articles.

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25
Q

What does the UK Corporate Governance Code primarily apply to?

A

Companies with a premium listing of equity shares.

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26
Q

What is the ‘comply or explain’ mechanism in the UK Corporate Governance Code?

A

Companies must either comply with the Code’s provisions or explain their non-compliance in the annual report.

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27
Q

What is the main focus of the UK Stewardship Code 2020?

A

Responsible investment and sustainable management of capital.

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28
Q

What are the six principles of the Wates Corporate Governance Principles?

A

Purpose and Leadership, Board Composition, Director Responsibilities, Opportunity and Risk, Remuneration, and Stakeholder Engagement.

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29
Q

What is the purpose of a strategic report under s414C CA 2006?

A

To provide a fair review of business performance and principal risks.

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30
Q

What is corporate governance according to the Cadbury Report (1992)?

A

‘The system by which companies are directed and controlled.’

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31
Q

What is the primary definition of corporate governance?

A

Corporate governance refers to the system by which companies are directed and controlled.

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32
Q

What was the initial purpose of corporate governance?

A

To prevent corporate failures.

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33
Q

How has the purpose of corporate governance evolved?

A

It now focuses on promoting long-term sustainable success, shareholder value, and societal benefits.

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34
Q

What are ordinary resolutions, and when are they used?

A

Ordinary resolutions require a simple majority and are used for routine decisions like appointing directors.

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35
Q

What are special resolutions, and what is the threshold for passing them?

A

Special resolutions require at least 75% of votes and are used for significant decisions, such as altering articles of association.

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36
Q

What are AGMs, and are they mandatory for all companies?

A

AGMs (Annual General Meetings) are mandatory for public companies to discuss annual reports and elect directors.

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37
Q

What is the role of the board of directors under corporate governance?

A

Directors are entrusted with day-to-day management, strategic decision-making, and accountability to shareholders.

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38
Q

How are directors typically appointed in a company?

A

Directors are appointed by shareholders through ordinary resolutions or by board decision.

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39
Q

What is the ‘comply or explain’ model in corporate governance?

A

Companies must comply with governance codes or explain deviations in their annual reports.

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40
Q

What does the UK Corporate Governance Code emphasize regarding board leadership?

A

Effective and entrepreneurial leadership that promotes long-term sustainable success.

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41
Q

What are the Wates Corporate Governance Principles, and who are they for?

A

Voluntary principles focusing on leadership, accountability, and stakeholder relationships, intended for large private companies.

42
Q

What section of the Companies Act 2006 mandates the strategic report?

A

Section 414C.

43
Q

What information does a strategic report include?

A

A review of the business, principal risks, and key performance indicators.

44
Q

What is the purpose of the UK Stewardship Code 2020?

A

To encourage responsible capital allocation and long-term value creation by institutional investors.

45
Q

How does the UK Corporate Governance Code address remuneration?

A

By aligning director rewards with long-term performance and success.

46
Q

What are the challenges of the ‘comply or explain’ mechanism?

A

It may lead to inconsistent application and allow companies to evade governance standards.

47
Q

How can shareholders remove directors under the Companies Act 2006?

A

By passing an ordinary resolution under sections 168–169.

48
Q

What are directors required to disclose under governance regulations?

A

Remuneration policies, substantial property transactions, and conflicts of interest.

49
Q

What is the purpose of corporate governance reporting under the 2018 Regulations?

A

To ensure transparency in governance practices for large private and unlisted public companies.

50
Q

What was the original focus of the Cadbury Report (1992)?

A

Financial reporting and accountability in listed companies.

51
Q

What is shareholder activism, and how does it impact governance?

A

Shareholder activism involves engaging with board decisions, often pressuring boards to prioritize short-term gains.

52
Q

What does the principle of accountability under the UK Corporate Governance Code entail?

A

Boards are responsible for financial performance, operational control, and transparency.

53
Q

How do minority shareholders face challenges in governance?

A

They often have limited influence compared to institutional investors, risking underrepresentation.

54
Q

What section of the Companies Act 2006 governs the alteration of articles?

A

Section 21.

55
Q

What does Hannigan argue about governance enforcement?

A

Stricter enforcement is needed to prevent misuse of the ‘comply or explain’ model.

56
Q

What is the significance of the 2018 Corporate Governance Regulations?

A

They extend reporting requirements to very large private companies and unlisted public companies.

57
Q

What are the six principles outlined in the Wates Principles?

A

Leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder engagement.

58
Q

What is the primary role of institutional investors under the UK Stewardship Code?

A

To manage capital responsibly and engage with companies for sustainable economic and societal benefits.

59
Q

What are the key challenges in global corporate governance?

A

Inconsistencies across jurisdictions and difficulty enforcing ethical practices.

60
Q

What does section 239 of the Companies Act 2006 regulate?

A

The ratification of directors’ acts.

61
Q

What is the main objective of corporate governance?

A

To balance the interests of shareholders, management, customers, suppliers, financiers, and society while promoting long-term sustainable success.

62
Q

What is the key feature of the UK Corporate Governance Code (2024)?

A

It operates on a ‘comply or explain’ basis, requiring listed companies to either comply with governance principles or explain deviations.

63
Q

What roles are separated under the UK Corporate Governance Code?

A

The roles of CEO and Chair of the board are separated to ensure effective leadership and accountability.

64
Q

What does the Stewardship Code (2020) aim to achieve?

A

It encourages institutional investors to engage responsibly with companies and promotes long-term value creation.

65
Q

What did the case Re Duomatic Ltd [1969] establish?

A

That decisions unanimously agreed upon by shareholders outside formal meetings are binding.

66
Q

What power do shareholders have under CA 2006, s168?

A

Shareholders can remove directors by passing an ordinary resolution.

67
Q

What does the Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] case establish?

A

Directors are not bound by shareholder instructions unless provided for in the articles of association.

68
Q

What are the mandatory financial reporting requirements under the CA 2006?

A

Directors must prepare financial reports and make them accessible to stakeholders under Part 15 of the CA 2006.

69
Q

What is the role of independent non-executive directors (NEDs) under the UK Corporate Governance Code?

A

To oversee board decisions and ensure independence in decision-making.

70
Q

What section of the Companies Act 2006 governs directors’ duty to avoid conflicts of interest?

A

Section 175.

71
Q

What is the purpose of the strategic report under section 414C of the Companies Act 2006?

A

To provide a fair review of the company’s business performance and highlight principal risks.

72
Q

What are the six Wates Corporate Governance Principles for large private companies?

A

Purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder relationships.

73
Q

What does the case Hogg v Cramphorn Ltd [1967] demonstrate?

A

Directors must act for proper purposes, and decisions that improperly dilute shareholder voting power are invalid.

74
Q

What challenges are associated with the ‘comply or explain’ model?

A

Weak enforcement and the risk of superficial compliance or inadequate explanations.

75
Q

What is the purpose of narrative reporting in corporate governance?

A

To outline environmental, social, and governance (ESG) considerations in company reports.

76
Q

What section of the Companies Act 2006 requires directors to act within their powers?

A

Section 171.

77
Q

What does the case Bushell v Faith [1970] establish regarding voting rights?

A

Weighted voting rights can protect directors from removal by shareholders.

78
Q

What is a significant critique of corporate governance codes, as highlighted by Cheffins (2013)?

A

The shareholder-centric model may not suit all business structures, especially private companies.

79
Q

What does section 239 of the Companies Act 2006 allow shareholders to do?

A

Ratify directors’ breaches of duty, provided no conflict of interest arises.

80
Q

What is the primary focus of the UK Corporate Governance Code’s remuneration provisions?

A

To ensure executive pay aligns with long-term performance and shareholder interests.

81
Q

What are institutional investors encouraged to do under the Stewardship Code (2020)?

A

Engage actively and responsibly with boards to influence governance practices.

82
Q

What is the impact of shareholder activism on corporate governance?

A

It can pressure boards to prioritize short-term gains over long-term stability.

83
Q

What case emphasized the directors’ duty to act for proper purposes?

A

Howard Smith Ltd v Ampol Petroleum Ltd [1974].

84
Q

What is the main critique of minority shareholder protection in governance?

A

Minority shareholders often lack the influence needed to impact significant decisions.

85
Q

How do the 2018 Corporate Governance Regulations address transparency?

A

By requiring large private and unlisted public companies to disclose governance arrangements in their financial reports.

86
Q

What does Keay (2014) argue about the enforcement of governance codes?

A

That the ‘comply or explain’ approach allows companies to evade accountability through superficial explanations.

87
Q

What is the Duomatic principle, and why is it significant?

A

It allows binding decisions made unanimously by shareholders outside meetings, simplifying decision-making.

88
Q

What does the Cadbury Report (1992) emphasize about board accountability?

A

Boards must ensure accountability and transparency to maintain investor trust.

89
Q

How does the UK Corporate Governance Code address risk management?

A

By requiring boards to establish a framework for identifying and managing risks.

90
Q

What is the purpose of the remuneration report under CA 2006, s439?

A

To disclose directors’ pay policies and ensure alignment with company success.

91
Q

What are some advantages of corporate governance codes?

A

Flexibility, adaptability, and setting aspirational standards without rigid statutory enforcement.

92
Q

What does the case Re City Equitable Fire Insurance Co Ltd [1925] highlight?

A

Historical minimal standards for directors’ duty of care, replaced by modern standards under CA 2006.

93
Q

What are the main areas of focus in the UK Corporate Governance Code?

A

Board leadership, division of responsibilities, composition, audit, risk management, and remuneration.

94
Q

What does the case Adams v Cape Industries Plc [1990] signify in governance?

A

The judiciary’s reluctance to pierce the corporate veil, emphasizing separate corporate personality.

95
Q

What is the purpose of the UK Stewardship Code for asset managers?

A

To promote responsible investment and sustainable benefits for society.

96
Q

How does the Companies Act 2006 regulate shareholder resolutions?

A

Ordinary resolutions require a simple majority, and special resolutions need 75%.

97
Q

What is the importance of independent directors in corporate governance?

A

They ensure unbiased decision-making and prevent conflicts of interest within the board.

98
Q

What is the judiciary’s stance on piercing the corporate veil?

A

The judiciary is reluctant to pierce the corporate veil, emphasizing separate corporate personality.

99
Q

How does the Companies Act 2006 regulate shareholder resolutions?

A

Ordinary resolutions require a simple majority (s282), and special resolutions need 75% (s283).

100
Q

What does the Wates Principles’ focus on stakeholder relationships entail?

A

Encouraging transparency and engagement with stakeholders to enhance accountability.

101
Q

What is a critique of excessive corporate governance reporting?

A

Disclosure overload can obscure critical information, making it harder for stakeholders to assess governance quality.

102
Q

Why are global governance standards challenging to implement?

A

Regional variations and differing regulatory environments hinder uniform governance practices.

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