Corporate Governance Flashcards
What did the Cadbury Commitee in 1992 (para 2.5) define corporate governance as?
“The system by which companies are directed and controlled”
What are the aims of corporate governance according to the UK Corporate Governance Code (April 2016)?
‘to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company’
What are the benefits of the UK Corporate Governance Code?
Flexible - able to implement to suit individual business
Regularly Updated - quicker response to changes than legislation
Expertise - created by experts and executives with experience
What are the disadvantages of the UK Corporate Governance Code?
It is not enforceable - there are no legal sanctions available as just purely recommendations
The code provisions are general statements and principles so are open to different interpretations
Bias - drafted by/following consultation with industry so possibility that will favour those by advocating lax standards or ineffective recommendations
What are the fundamental pillars of UK corporate governance?
- accountability
- transparency
- responsibility
- fairness
What do the principles of the UK Corporate Governance Code aim to ensure?
- that the board of directors is effective and accountable
- that the powers of the chairman and CEO are not abused
- an open and effective dialogue between the board and its members
Are companies under a legal obligation to comply with the code?
No
What do the Listing Rules for the LSE require a company to include in its annual report?
- a statement indicating how the company has applied the main principles of the Code
- a statement indicating to what extent the provisions of the Code have been complied with and, if certain provisions have not been complied with, the company must provide its reasons for non-compliance (“comply or explain”)
According to the Grant Thorton LLP survey (2016) what percentage of FTSE 350 companies comply with all or all but one/two of the Code provisions?
90
What is the highest area of non-compliance with the UK Corporate Governance Code according to the Financial Reporting Council (2016)? How many companies from FTSE 350 did not comply?
B.1.2 - recommendation that 50% of board is made of independent non-executive directors
26 not complying
What is included or suggested in the UK Corporate Governance Code preface?
- follow spirit of code as well as its letter
- in order to follow the spirit of the code to good effect, board must think deeply, thoroughly and on a continuing basis
- encourages diversity for constructive debate on the board
Which provision of the UK Corporate Governance Code stipulates that the 2 roles of Chairman and CEO should not be exercised by the same person?
Provision A.2.1
Which provision of the UK Corporate Governance Code requires the board to present a fair, balanced and understandable assessment of the company’s financial position and prospects?
C.1
Why is it important that the board of a company produces a fair, balanced and understandable assessment of the company’s position and prospects in its financial reporting?
It makes it easier for investors to understand and they can use this as its basis for making investment decisions
Which principle in the UK Corporate Governance Code suggests that a company should have formal and transparent arrangements for corporate reporting (auditing), internal controls and its relationship with the company’s auditors?
C.3
What provisions are included in the UK Corporate Governance Code under principle C.3.2 concerning the company’s audit committee and auditors?
- monitor integrity of financial statements of company
- monitor and review effectiveness of company’s internal audit function
- review and monitor the external auditor’s independence
Which provision of the UK Corporate Governance Code recommends that the board of a company should have a dialogue with shareholders based on the mutual understanding of the company’s objectives?
E.1
Which principle of the UK Corporate Governance Code recommends that the board should include an appropriate combination of executive and non-executive directors (esp. Independent ones)?
B.1
Which supporting principle recommends that the board needs to explain the independence of an non-executive director if they have recently been a previous employee or have close family ties to the director, etc.?
B.1.1