Corporate governance

Question 1

What corporate governance means

Answer 1

Corporate governance is the means by which the company is operated and controlled

Question 2

The aim of corporate governance is to …

Answer 2

… ensure companies run well and in the interests of their shareholders and stakeholders

Question 3

The aim of corporate governance is to try and ….

Answer 3

… prevent directors from abusing their power

Question 4

Advantage of following good corporate governance principles:

Answer 4

• greater transparency - greater accountability - efficiency of operations - better able to respond to risks - less likely to be mismanaged

Question 5

The Corporate Governance Code is split in 5 parts

Answer 5

1) Board leadership 2) Division of responsibilities 3) Composition, succession and evaluation 4) Audit, risk and internal control 5) Remuneration

Question 6

The 6 OECD (Organisation for Economic Co-operation and Development) principles are:

Answer 6

• Basis for an effective corporate governance framework - Rights and equitable treatment for shareholders and key ownership functions - Institutional investors, stock markets and other intermediaries - The role of stakeholders in CG - Disclosure and transparency - The responsibilities of the Board

Question 7

Board leadership - Principles / role

Answer 7

Role: - To promote long-term sustainable success, generating value for shareholders - Establishes co’s purpose, values and strategy - Ensures necessary resources are in place - Establish a framework for effective controls - Ensure effective engagement with shareholders / stakeholders - Workforce policies that are in line with co’s values

Question 8

Board leadership - Main provisions

Answer 8

Board should: - describe in annual report how opportunities and risks are addressed to the future success - assess and monitor culture - chair should remain engaged with shareholders - 20% + votes for Board recommendations, need to understand the reason behind the vote - understand and consider the interests of other stakeholders - allow workforce to raise confidence concerns and anonymously (whistleblowing) - manage conflicts of interests - concerns not resolved in meetings should be minuted

Question 9

The chair’s role

Answer 9

• leads Board of directors - enables flow of information and discussion at meetings - ensures satisfactory channels of communication with the external auditors - effective operation of the Board and sub-committees - should be independent to enhance effectiveness

Question 10

Role of chief executive

Answer 10

• ensures the effective operation of the company - head of executive directors

Question 11

Role of executive directors

Answer 11

• running the company on a day to day basis

Question 12

Role of Non-executive directors

Answer 12

• contribute to the overall strategy - part-time

Question 13

Non-Executive directors will..

Answer 13

• be part-time employees - participate at Board meetings - bring experience and expertise - sit on sub-committees as independent experts

Question 14

Advantages of participation of NEDs

Answer 14

• oversight of the whole Board - independent so they act with ‘‘corporate conscience’’ - bring expertise

Question 15

Disadvantages of NEDs

Answer 15

• difficult to find the NED with right expertise, experience and skills - may not keep well-informed at all times so limited in fulfilling their role - their fees are expensive

Question 16

Division of responsibilities - Principles Chair

Answer 16

Chair: - leads the Board and resp. for effectiveness - ensure effective contribution of all Board members - ensure dirs receive clear, accurate, timely information

Question 17

Division of responsibilities - Principles Board

Answer 17

Board: - should be balanced, no domination between groups - ensure it has the policies, processes, inf, time and resources to function properly

Question 18

Division of responsibilities - Principles NEDs

Answer 18

NEDs: - should have sufficient time to fulfill their resp. - should keep management accountable

Question 19

Division of responsibilities - Main Provisions Chair

Answer 19

• Chair independent on appointment - Chair cannot be same as the chief executive

Question 20

Division of responsibilities - Provisions NEDs - Independence of NEDs would be deemed to be affected if a director:

Answer 20

• is/has been employee in last 5 yrs - has/had within last 3 yrs material business relationship with the company, directly or indirectly, as a part of a body that has such relationship - has received other than director’s fee: - other remuneration - share options - part of pension plan through the co. - has close family ties with other company advisers, dirs, senior employees. - holds other directorships/has links with other dirs through involvment in other companies - represents a significant shareholder - has been on the Board 9+ yrs from date of first appt

Question 21

Division of responsibilities - Main Provisions NEDs

Answer 21

• At least half of Board should be NEDs, excl. chair - Independent NEDs should be identified in the annual reports - Recommended that a NED is appt as senior independent director - NED’s & senior indep. dir have a separate meeting to review the chair performance - NED’s appoint and remove executive dirs and review their performance against objectives

Question 22

Division of responsibilities - Main Provisions Appointments and removals

Answer 22

• New appts take into account time needed from the new dir - Appt should not be made without Board approval - Appt/removal of co. sec.- matter for the whole Board

Question 23

Division of responsibilities - Main Provisions Responsibilities / Annual report

Answer 23

• Responsibilities of chair, chief executive, senior independent director, board and committees in writing and public - Annual report - contains no meetings and attendance of each dir

Question 24

Composition of a Board - Principles

Answer 24

• should promote diversity - combination of skills, experience and knowledge

Question 25

Appointment / Succesion to the Board - Principles

Answer 25

• formal, rigorous and transparent - effective succession plan maintained - based on merit and objective criteria - should promote diversity

Question 26

Evaluation of a Board - Principles

Annual evaluation of the Board should consider:

Answer 26

Annual evaluation of the Board should consider its composition, diversity and efficience of the Board in achieving objectives