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FA > Corporate governance > Flashcards

Corporate governance Flashcards

1
Q
A
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2
Q

What needs to exist between the chair and shareholders?

A

Engagement and good dialogue

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3
Q

What % of the vote needs to go against the board for them to take action (without the vote failing) and what will they do?

A

20% - Next report must include an explanation and what they are going to do about it

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4
Q

who is represented by the board?

A

Stakeholders. Owners and workforce etc. Workforce views need to be represented.

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5
Q

What must the chairman be?

A

Independent.

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6
Q

Who does the chairman and the NEDs represent?

A

The voice of the shareholders

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7
Q

what is the role of the chairman?

A

ensure the board is getting the right info, and providing the right info (they drive the business and need to correct info).

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8
Q

What type of information must the board receive?

A

Timely, accurate and quality info

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9
Q

who challenges the board ED’s? how is it done.

A

NED’s - this is done by asking difficult questions.

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10
Q

Who cannot be the chairman? why.

A

The chief executive. As there needs to be a split of power so that one stops the other. The chairman needs to be independent.

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11
Q

What needs to be in place if someone on the board leaves and what is it.

A

Succession planning - this is planning in case someone leaves and having someone able to come in straight away.

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12
Q

What is the required knowledge of the ED’s and the NED’s and why?

A

ED’s - need to have knowledge of how the business works.

NED’s - No required knowledge about how the business works. May be good if they dont know as will ask more questions if they dont know in order to understand.

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13
Q

what is the role of the NEDs?

A

To hold the ED’s to account and represent the shareholders voice.

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14
Q

what is a crucial characteristic which the NED must have?

A

Independence.

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15
Q

How can NEDs be judged as being independent?

A
  1. Not an employee in the last 5 years
  2. No material relationship in the last 3 years
  3. No additional remuneration except for the fee rec’d (which shouldn’t be excessive).
  4. Not a significant shareholder
  5. Not been part of the board for longer than 9 years
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16
Q

Who should there be regular dialogue between? (except from chair and shareholders)

A

NED’s and the chairman, which should be a seperate conversation from the ED’s of the firm

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17
Q

why should the board and committee get refreshed regularly?

A

To make sure they dont face ‘cabin fever’ if they have been there for too long.

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18
Q

what should there be an annual evaluation of?

A

Compostion, divesity, and working relationships

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19
Q

Diversity?

A

Should be diverse board (gender, ethnicity, experience etc).

20
Q

What committees are required?

A
  1. Audit
  2. Nominations.
  3. remunerations.
21
Q

what is the role of the nominations committee?

A

They look at succession planning and make sure it is in place.

22
Q

what must the nominations committee make sure when performing succession planning?

A

That the board is kept unbiased and independent

23
Q

What are the requirements for the chair of the nominations committee?

A

They need to be independent and cant last more than 9 years on the board.

24
Q

What are the requirements of the audit committee?

A
  1. 3 independent NED’s
  2. At least one of the NED’s to understand FS’s.
  3. Not to include the chair of the company.
  4. Must have ‘relevant experience’ in the sector .
25
Q

What is the job of the audit committe?

A
  1. Suggest and advise the board on the external auditors of the company.
  2. ID any risk the organisation may face or that may approach.
  3. Suggest to the board when they should sign off on the Financial Statements. (They need to ask questions of the FD to make sure the FS are true and fair).
26
Q

how should remuneration generally be made?

A

Remuneration should reflect the long term strategy of the business, and should not be made as a result of short term profits.

27
Q

what is the role of the remuneration committee?

A

To determine the remuneration of the ED’s, chair and senior management.

28
Q

what is the requirements for the audit committee structure?

A
  1. 3 independent NEDs
  2. To consider the remuneration of the shop floor workers too.
29
Q

What is the requirement for the chair of the remuneration committee before becoming the chair?

A

That they are a memeber of the RC.

30
Q

what must remuneration comprise and how must they be issued as remuneration.

A
  1. Basic pay (salary).
  2. Shares @ preferential rates.
  • Shares must have a 5 year vesting period!
    1. Pension contributions
  • Only basic salary is pensionable.
31
Q

What should the remuneration policy include and what does this mean?

A

There should be a policy to clawback. i.e. Get the remuneration back should there be poor profits following this or in the event of them leaving following this.

32
Q

how should the size of the board be?

A

It should reflect the size of the company?

33
Q

What should the mix of the board be?

A

The board must be a blanced mix of independent NEDs and EDs

34
Q

what does unfettered power mean?

A

No one individual should have this in an org. Too much power.

35
Q

What is the rule for ED’s of a company becoming NEDs of others?

A

full time ED’s should not take on more than one role of NED’s of a FTSE 100 company.

36
Q

when can a chair be in place for more than the advised 9 years?

A

When succession planning is occuring and it is facilitating this.

37
Q

Going concern?

A

Board should state if it is fair to assume the going concern in the FS.

38
Q

How is the remuneration for the chair and the NEDs handled?

A

It should reflect time commitments and responsibilities of their roles.

39
Q

what should remuneration for NEDs not include?

A

Share options or performance related elements. They should only be charged a flat fee.

40
Q

What is corporate governance?

A

This is the system to which companies are directed and controlled.

41
Q

Board shouldnt be dominated by what

A

Chairman contacts. Board should be based on merit

42
Q

main characs of an NED?

A
  1. Speak on behalf of the shareholders
  2. Independent and unbias
  3. Scrutinsie the decisions of the NED’s.
43
Q

What if audit committee suggest to sign off FS without looking at

A

How can you say this is true and fair. Guaranteed to be mistakes in FS and if they dont ask questions how can you be sure this is fair and ethical.

44
Q

how can shareholders control directors

A
  1. Performance related pay
  2. Bonuses - based on performance
  3. Share options - options to buy shares in the future and hold them for a period of time
45
Q

How can shareholders monitor directors?

A
  1. Performance related pay
  2. Bonuses - based on performance.
  3. Share options - options to buy shares in future and hold for period of time.
46
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A
47
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FA (12 decks)

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