Corporate Governance Flashcards
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.
2
Q
What are the ‘organs’ of a company?
A
The members (shareholders) and the directors.
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.
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.
5
Q
How do shareholders make decisions in private companies?
A
Through written resolutions or meetings.
6
Q
How do shareholders make decisions in public companies?
A
Through general meetings.
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.
8
Q
What threshold is required for an ordinary resolution to pass?
A
A simple majority.
9
Q
What threshold is required for a special resolution to pass?
A
At least 75% of votes cast.
10
Q
What does the Companies Act 2006 regulate regarding governance?
A
Actions by shareholders, rules about meetings, and director qualifications.
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.
12
Q
What rights do shareholders have at meetings?
A
The right to vote in person, by proxy, or through representatives.
13
Q
What is the quorum requirement for shareholder meetings?
A
A minimum of two shareholders.
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.
15
Q
What happens if a company does not have bespoke articles of association?
A
The default model articles apply.
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.
17
Q
What section requires companies to have articles of association?
A
Section 18 of the Companies Act 2006.
18
Q
What powers do directors have under model articles?
A
They manage the company and exercise its powers, subject to the articles.
19
Q
Can shareholders direct the directors to take action?
A
Yes, by special resolution.
20
Q
What does section 21 of the Companies Act 2006 regulate?
A
Alteration of articles of association.
21
Q
How can directors delegate their powers?
A
By authorizing committees, individuals, or means specified in the articles.
22
Q
What statutory provisions regulate directors’ transactions?
A
Long-term service contracts, substantial property transactions, and loans.
23
Q
Under which section can directors’ acts be ratified?
A
Section 239 of the Companies Act 2006.
24
Q
What are the statutory provisions for the removal of directors?
A
Sections 168 and 169 CA 2006, and the company’s articles.
25
What does the UK Corporate Governance Code primarily apply to?
Companies with a premium listing of equity shares.
26
What is the 'comply or explain' mechanism in the UK Corporate Governance Code?
Companies must either comply with the Code’s provisions or explain their non-compliance in the annual report.
27
What is the main focus of the UK Stewardship Code 2020?
Responsible investment and sustainable management of capital.
28
What are the six principles of the Wates Corporate Governance Principles?
Purpose and Leadership, Board Composition, Director Responsibilities, Opportunity and Risk, Remuneration, and Stakeholder Engagement.
29
What is the purpose of a strategic report under s414C CA 2006?
To provide a fair review of business performance and principal risks.
30
What is corporate governance according to the Cadbury Report (1992)?
'The system by which companies are directed and controlled.'
31
What is the primary definition of corporate governance?
Corporate governance refers to the system by which companies are directed and controlled.
32
What was the initial purpose of corporate governance?
To prevent corporate failures.
33
How has the purpose of corporate governance evolved?
It now focuses on promoting long-term sustainable success, shareholder value, and societal benefits.
34
What are ordinary resolutions, and when are they used?
Ordinary resolutions require a simple majority and are used for routine decisions like appointing directors.
35
What are special resolutions, and what is the threshold for passing them?
Special resolutions require at least 75% of votes and are used for significant decisions, such as altering articles of association.
36
What are AGMs, and are they mandatory for all companies?
AGMs (Annual General Meetings) are mandatory for public companies to discuss annual reports and elect directors.
37
What is the role of the board of directors under corporate governance?
Directors are entrusted with day-to-day management, strategic decision-making, and accountability to shareholders.
38
How are directors typically appointed in a company?
Directors are appointed by shareholders through ordinary resolutions or by board decision.
39
What is the 'comply or explain' model in corporate governance?
Companies must comply with governance codes or explain deviations in their annual reports.
40
What does the UK Corporate Governance Code emphasize regarding board leadership?
Effective and entrepreneurial leadership that promotes long-term sustainable success.
41
What are the Wates Corporate Governance Principles, and who are they for?
Voluntary principles focusing on leadership, accountability, and stakeholder relationships, intended for large private companies.
42
What section of the Companies Act 2006 mandates the strategic report?
Section 414C.
43
What information does a strategic report include?
A review of the business, principal risks, and key performance indicators.
44
What is the purpose of the UK Stewardship Code 2020?
To encourage responsible capital allocation and long-term value creation by institutional investors.
45
How does the UK Corporate Governance Code address remuneration?
By aligning director rewards with long-term performance and success.
46
What are the challenges of the 'comply or explain' mechanism?
It may lead to inconsistent application and allow companies to evade governance standards.
47
How can shareholders remove directors under the Companies Act 2006?
By passing an ordinary resolution under sections 168–169.
48
What are directors required to disclose under governance regulations?
Remuneration policies, substantial property transactions, and conflicts of interest.
49
What is the purpose of corporate governance reporting under the 2018 Regulations?
To ensure transparency in governance practices for large private and unlisted public companies.
50
What was the original focus of the Cadbury Report (1992)?
Financial reporting and accountability in listed companies.
51
What is shareholder activism, and how does it impact governance?
Shareholder activism involves engaging with board decisions, often pressuring boards to prioritize short-term gains.
52
What does the principle of accountability under the UK Corporate Governance Code entail?
Boards are responsible for financial performance, operational control, and transparency.
53
How do minority shareholders face challenges in governance?
They often have limited influence compared to institutional investors, risking underrepresentation.
54
What section of the Companies Act 2006 governs the alteration of articles?
Section 21.
55
What does Hannigan argue about governance enforcement?
Stricter enforcement is needed to prevent misuse of the 'comply or explain' model.
56
What is the significance of the 2018 Corporate Governance Regulations?
They extend reporting requirements to very large private companies and unlisted public companies.
57
What are the six principles outlined in the Wates Principles?
Leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder engagement.
58
What is the primary role of institutional investors under the UK Stewardship Code?
To manage capital responsibly and engage with companies for sustainable economic and societal benefits.
59
What are the key challenges in global corporate governance?
Inconsistencies across jurisdictions and difficulty enforcing ethical practices.
60
What does section 239 of the Companies Act 2006 regulate?
The ratification of directors' acts.
61
What is the main objective of corporate governance?
To balance the interests of shareholders, management, customers, suppliers, financiers, and society while promoting long-term sustainable success.
62
What is the key feature of the UK Corporate Governance Code (2024)?
It operates on a 'comply or explain' basis, requiring listed companies to either comply with governance principles or explain deviations.
63
What roles are separated under the UK Corporate Governance Code?
The roles of CEO and Chair of the board are separated to ensure effective leadership and accountability.
64
What does the Stewardship Code (2020) aim to achieve?
It encourages institutional investors to engage responsibly with companies and promotes long-term value creation.
65
What did the case Re Duomatic Ltd [1969] establish?
That decisions unanimously agreed upon by shareholders outside formal meetings are binding.
66
What power do shareholders have under CA 2006, s168?
Shareholders can remove directors by passing an ordinary resolution.
67
What does the Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] case establish?
Directors are not bound by shareholder instructions unless provided for in the articles of association.
68
What are the mandatory financial reporting requirements under the CA 2006?
Directors must prepare financial reports and make them accessible to stakeholders under Part 15 of the CA 2006.
69
What is the role of independent non-executive directors (NEDs) under the UK Corporate Governance Code?
To oversee board decisions and ensure independence in decision-making.
70
What section of the Companies Act 2006 governs directors’ duty to avoid conflicts of interest?
Section 175.
71
What is the purpose of the strategic report under section 414C of the Companies Act 2006?
To provide a fair review of the company’s business performance and highlight principal risks.
72
What are the six Wates Corporate Governance Principles for large private companies?
Purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration, and stakeholder relationships.
73
What does the case Hogg v Cramphorn Ltd [1967] demonstrate?
Directors must act for proper purposes, and decisions that improperly dilute shareholder voting power are invalid.
74
What challenges are associated with the 'comply or explain' model?
Weak enforcement and the risk of superficial compliance or inadequate explanations.
75
What is the purpose of narrative reporting in corporate governance?
To outline environmental, social, and governance (ESG) considerations in company reports.
76
What section of the Companies Act 2006 requires directors to act within their powers?
Section 171.
77
What does the case Bushell v Faith [1970] establish regarding voting rights?
Weighted voting rights can protect directors from removal by shareholders.
78
What is a significant critique of corporate governance codes, as highlighted by Cheffins (2013)?
The shareholder-centric model may not suit all business structures, especially private companies.
79
What does section 239 of the Companies Act 2006 allow shareholders to do?
Ratify directors’ breaches of duty, provided no conflict of interest arises.
80
What is the primary focus of the UK Corporate Governance Code’s remuneration provisions?
To ensure executive pay aligns with long-term performance and shareholder interests.
81
What are institutional investors encouraged to do under the Stewardship Code (2020)?
Engage actively and responsibly with boards to influence governance practices.
82
What is the impact of shareholder activism on corporate governance?
It can pressure boards to prioritize short-term gains over long-term stability.
83
What case emphasized the directors' duty to act for proper purposes?
Howard Smith Ltd v Ampol Petroleum Ltd [1974].
84
What is the main critique of minority shareholder protection in governance?
Minority shareholders often lack the influence needed to impact significant decisions.
85
How do the 2018 Corporate Governance Regulations address transparency?
By requiring large private and unlisted public companies to disclose governance arrangements in their financial reports.
86
What does Keay (2014) argue about the enforcement of governance codes?
That the 'comply or explain' approach allows companies to evade accountability through superficial explanations.
87
What is the Duomatic principle, and why is it significant?
It allows binding decisions made unanimously by shareholders outside meetings, simplifying decision-making.
88
What does the Cadbury Report (1992) emphasize about board accountability?
Boards must ensure accountability and transparency to maintain investor trust.
89
How does the UK Corporate Governance Code address risk management?
By requiring boards to establish a framework for identifying and managing risks.
90
What is the purpose of the remuneration report under CA 2006, s439?
To disclose directors’ pay policies and ensure alignment with company success.
91
What are some advantages of corporate governance codes?
Flexibility, adaptability, and setting aspirational standards without rigid statutory enforcement.
92
What does the case Re City Equitable Fire Insurance Co Ltd [1925] highlight?
Historical minimal standards for directors’ duty of care, replaced by modern standards under CA 2006.
93
What are the main areas of focus in the UK Corporate Governance Code?
Board leadership, division of responsibilities, composition, audit, risk management, and remuneration.
94
What does the case Adams v Cape Industries Plc [1990] signify in governance?
The judiciary’s reluctance to pierce the corporate veil, emphasizing separate corporate personality.
95
What is the purpose of the UK Stewardship Code for asset managers?
To promote responsible investment and sustainable benefits for society.
96
How does the Companies Act 2006 regulate shareholder resolutions?
Ordinary resolutions require a simple majority, and special resolutions need 75%.
97
What is the importance of independent directors in corporate governance?
They ensure unbiased decision-making and prevent conflicts of interest within the board.
98
What is the judiciary’s stance on piercing the corporate veil?
The judiciary is reluctant to pierce the corporate veil, emphasizing separate corporate personality.
99
How does the Companies Act 2006 regulate shareholder resolutions?
Ordinary resolutions require a simple majority (s282), and special resolutions need 75% (s283).
100
What does the Wates Principles’ focus on stakeholder relationships entail?
Encouraging transparency and engagement with stakeholders to enhance accountability.
101
What is a critique of excessive corporate governance reporting?
Disclosure overload can obscure critical information, making it harder for stakeholders to assess governance quality.
102
Why are global governance standards challenging to implement?
Regional variations and differing regulatory environments hinder uniform governance practices.
