Corporate Governance Flashcards
What types of organisation have the strongest governance requirements?
Listed companies
Charities
Government Departments, agencies and authorities
What Code governs companies on the London Stock Exchange?
UK Corporate Governance Code
What are the three key purposes of corporate governance?
- Facilitate accountability and responsibility for effective and efficient performance and ethical behaviour
- Protect execs and employees in doing their work
- Ensure stakeholder confidence in the org’s ability to identify and achieve objectives
What are the two key approaches to corporate governance requirements?
Comply or explain (LSE)
Full compliance
What 5 steps should be taken in order to improve corporate governance within and organisation?
- Develop code of ethics for directors and produce ‘delegation of authority’ document
- Produce an annual statement of conflicts of interest
- Director training on corp. gov.
- Establish committees with ToR e.g.
- RM Committee
- Audit Committee
- Disclosures Committee
- Nominations Committee
- Remuneration Committee - Reports to every board meeting on corp. gov. standards, concerns and activities
How is corporate governance defined in the OECD Principles of Corporate Governance?
“The system by which organisations are directed and controlled.”
What are the four over-arching concerns of the OECD Principles of Corporate Governance?
Openness, integrity, accountability, decision making
Which standard is most closely associated with corporate governance in the UK
BS13500
Name a defining feature of BS13500
Defines different accountabilities to different stakeholders
Uses a checklist to ensure all elements of a good governance system are in place.
Name the OECD’s 6 principles of corporate governance
- Effective corporate governance framework
- Rights of shareholders
- Equitable treatment of shareholders
- Role of stakeholders in corporate governance
- Disclosure and transparency
- Responsibilities of the board
Explain the OECD corporate governance principle of “Effective corporate governance framework”.
Promote transparent and efficient markets,
Be consistent with the rule of law,
Define the division of responsibilities
Explain the OECD corporate governance principle of “Rights of shareholders”.
Protect and facilitate the exercise of the rights of shareholders
Explain the OECD corporate governance principle of “Equitable treatment of shareholders”.
Equitable treatment of all shareholders including minority and foreign shareholders
Explain the OECD corporate governance principle of “Role of stakeholders in corporate governance”.
Recognise the rights of stakeholders and encourage active co-operation in creating wealth, jobs and sustainability
Explain the OECD corporate governance principle of “Disclosure and transparency”.
Timely and accurate disclosure is made on all material matters, including financial situation, performance, ownership and governance
Explain the OECD corporate governance principle of “Responsibilities of the board”.
Strategic guidance of the company,
Effective monitoring of management by the board,
Accountability of the board to the company and shareholders.
The LSE Corporate Governance Framework separates governance OF the board from governance BY the board.
Explain what is meant by governance OF the board.
The board is governed by
- Membership
- Accountability
- Delegation
- Remuneration
The LSE Corporate Governance Framework separates governance OF the board from governance BY the board.
Explain what is meant by governance BY the board.
The board governs through
- Strategy
- Corporate Social Responsibility
- Risk
- Audit
- Disclosure
Risk is a separate component of the LSE framework but what other components are underpinned by risk?
Strategy
Corporate Social Responsibility
Audit
Disclosure
UK corporate governance is made up of which two sets of guidance?
LSE Framework
OECD Principles of Corporate Governance
What role does the third line of defence (non-execs, audit committee) play in corporate governance?
- Upholding ethical standards of integrity and probity
- Promote higher standards of corporate governance
- Seek compliance with applicable governance codes
- Gain trust and respect of board members
- Question, debate, challenge & make decisions objectively
- Listen to views of others including outside the board
- Support execs in leadership & monitor conduct
What might the internal governance guidelines for a bank include?
Required director qualifications & responsibilities
Delegation of authority to committees
Arrangements for annual performance evaluation & senior management succession
What will the corporate governance structure for a bank include?
A set of governing principles for the board e.g.
Conflicts of interest
Confidentiality
Legal/regulatory requirements
What is the training for board members likely to include in a bank?
- legal and regulatory framework
- risk management
- capital management and group accounting
- HR & compensation
- audit committee, internal/external audit
- communications including branding
How is the corporate governance approach in a government agency likely to differ from that of a bank?
More focussed on value for money and accountability.
What will a government agency’s governance framework describe?
Responsibilities of individual members of staff,
reporting structure for risk,
identification of risks to value,
business continuity,
fraud prevention,
IT security
What set of principles underpin corporate governance activities in government departments?
The Nolan Principles of Public Life
Name the 7 Nolan Principles of Public Life
- Selflessness, serving the public over self/friends/family
- Integrity, under no obligation to outside individuals or orgs
- Objectivity, decisions made on merit
- Accountability, answer to the public, open to scrutiny
- Openness, about decisions and actions
- Honesty, declaring private interests, resulting conflicts
- Leadership, support the principles by example
What are the two types of board structure?
Unitary board (mixture of execs and non-execs)
Two-tiered board (separate exec and non-exec boards, usually used by charities or public sector orgs)
In what areas should the effectiveness of the board be evaluated?
Membership and structure Purpose and intent Involvement and accountability Monitoring and review Performance and impact
What should be considered when evaluating the membership and structure of the board?
Necessary range of skills, experience and turnover to ensure new ideas?
Sub-committees appropriate, with appropriate delegated authority?
Good decision-making processes with adequate info available?
Good comms between board members outside of meetings?
What should be considered when evaluating the purpose and intent of the board?
Members understand and share the vision/mission, objectives?
Sufficient knowledge and understanding of significant risks?
Members involved with development of strategy?
Measurable budget and performance targets?
What should be considered when evaluating the involvement and accountability of the board?
Shared ethical values, open and honest, with policies consistent with this?
Duties, responsibilities and obligations understood?
Mutual trust and respect?
Adequate delegation and authorisation procedures in place?
What should be considered when evaluating the monitoring and review by the board?
Sufficient monitoring and appropriate measurement of performance?
Planning assumptions challenged when and where appropriate?
Able to rapidly respond to change?
Demand for continuous improvement?
Controls assessed and compliance assurance sought?
What should be considered when evaluating the performance and impact of the board?
Good board and committee attendance?
Board decisions recorded and tracked?
Targets/KPIs evaluated and assessed?
Impact of decisions and actions evaluated in a timely manner?
Emphasis on accuracy, honesty and open external reporting?
How do the governance arrangements in Germany differ to those in the UK
German law of dual board systems
What governance arrangements apply in Latin America?
Mexican code of best practice.
Sao Paulo has two stock exchanges with differing levels of governance.
