Corporate governance

Question 1

what is corporate governance

Answer 1

regulation of the exercise of power within a company to ensure that the company’s purpose is achieved - the practice by which companies are managed and controlled

Question 2

how does corporate governance manage power

Answer 2

1. systems to ensure balanced exercise of power
2. systems to ensure compliance with legal and regulatory obligations
3. processes to identify risks to the sustainability of the company and parameters to manage these
4. accountability to the stakeholders and broader society

Question 3

when did the corporate governance debate start

Answer 3

in the 1920s when people began to grapple with Separation of ownership and control

Question 4

what is the famous agency dilemma

Answer 4

the dynamic between the board as the company’s “controllers” and the shareholders as its “owners”

Question 5

what does the agency theory explain

Answer 5

it is inevitable that the interests of the agent will not always align with the interests of the principle and often the agent will engage in self centred behaviour at the cost of the principle

Question 6

what are “agency” costs

Answer 6

losses that occur when the interests of the principle and the agent do not align , they are endemic to the corporate structure

Question 7

how is corporate governance different to management

Answer 7

corporate governance = seeing that the business is run properly
management = running the business

Question 8

what are some advantages of corporate governance

Answer 8

1. access to capital
2. increased investment
3. good competitive advantage

Question 9

who are the custodians of corporate governance

Answer 9

the directors are the custodians of corporate governance according to the King IV

Question 10

what does King IV emphasize

Answer 10

1. sustainability
2. environmental issues
3. social issues
4. economic issues

Question 11

what does King IV not focus on

Answer 11

the bottom line

Question 12

What is a key characteristic of King IV

Answer 12

integrated reporting

Question 13

what is integrated reporting

Answer 13

a process aimed at ensuring a greater degree of transparency where the company does not only report on its financial position but also its socio-economic and environmental impact (used to be called triple bottom line reporting)

Question 14

is the king code binding

Answer 14

APPLY OR EXPLAIN = not binding but non compliance can have serious consequences i.e the company can be delisted

Question 15

what are some other sources of corporate governance

Answer 15

• companies act
• common law
• corporate governance codes
• JSE requirements

Question 16

what was the Cadbury report

Answer 16

the first corporate governance report the world saw prepared by Sir Cadbury in England

Question 17

what is the sarbanes oxley legislation (SOX)

Answer 17

in the USA legislation that opted to make governance provision mandatory