Corporate governance, ethics and social responsibility

Question 1

What is corporate governance?

Answer 1

A system by which companies are directed and controlled

Question 2

What does corporate governance consider ?

Answer 2

It Considers how directors can be held accountable to shareholders for their actions

Question 3

What is the risk of poor governance?

Answer 3

The risk of poor corporate governance is large losses that lead to insolvency, the stop of trade and close downs as a result of regulatory breaches

Question 4

What are examples of poor corporate governance?

Answer 4

~ Domination by single individual : sometimes the single individual can bypass the board to action their own interests

~ Lack of board involvement: sometimes the failure to carry out proper insight is due to lack of information being provided (irregular board meetings)

~ Lack of adequate control function : A rapid turnover of staff involved in accounting or control may suggest inadequate resourcing and will make control more difficult because of lack of continuity

~ Lack of supervision: employees who are not supervised can create large losses for the organization through their own negligence, incompetence or fraudulent activity

~ Lack of independent scrutiny : external audit may not carry out the necessary questioning of senior management because of fears of losing the audit, and internal auditors do not ask awkward questions because the chief financial officer determines their employment prospects

~ Lack of contact with shareholders : Board members may lose touch with the interests and views of shareholders

~ Emphasis on short-term profitability: Emphasis on success or getting results can lead to the concealment of problems or errors, or manipulation of accounts to achieve desired results

~ Misleading accounts and information: Poor quality accounting information is a major problem if stock members are trying to make a fair assessment of the company’s value (misleading figures are often symptomatic of other problems)

Question 5

What are the OECD principles of corporate governance?

Answer 5

The corporate governance framework should =

P1 : Promote transparent and fair markets and the efficient allocation of resources

P2 : Promote and facilitate the excercise of shareholders rights and ensure the equitable treatment of all shareholders

P3 : Provide sound incentives throughout the investment chain and provide to stock markets to function in a way that contributes to good corporate governance

P4 : Recognize the rights of shareholders established by law or through mutual agreements and encourage active cooperation between corporations and stakeholders creating wealth, jobs and more

P5 : Ensure that timely and accurate disclosure is made on all material matters regarding the corporation

P6 : Ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders

Question 6

What is the purpose of the OECD principles of corporate governance?

Answer 6

To guide governments and other organizations when developing corporate governance frameworks

Question 7

What is Ethics ?

Answer 7

A code of moral principles that people follow with respect to what is right and wrong

Question 8

What are the key principles of the UK corporate governance code ?

Answer 8

• Board leadership and company purpose
• Division of responsibilities
• Composition, succession and evaluation
• Aduit, risk and internal control
• Remuneration

Question 9

What us the rule-based approach?

Answer 9

A legislative approach ~ sometimes referred to as the compliance approach

Question 10

What are the advantages of the rule-based approach?

Answer 10

• Consistent application
• Breaches easy to identify
• Rules for specific outcomes

Question 11

What are the disadvantages of the rule-based approach?

Answer 11

• Cannot learn every rule
• Removes member discretion
• Long and lengthy rulebooks

Question 12

What is the framework approach?

Answer 12

The approach that is driven by values and principles ~ sometimes referred to as the ethics-based approach

Question 13

What are the advantages of the framework approach?

Answer 13

• It encourages proactive action
• Treats members as individuals
• Flexibility helps in complex situations
• Harder to search for loopholes

Question 14

What are the disadvantages of the framework approach?

Answer 14

• Interpretations can be subjective
• Potential for inconsistencies
• Ambiguity may be confusing
• Guidelines eventually become rules

Question 15

What are the factors to consider in ethics ?

Answer 15

• Values - rights and obligations from society
• Principles - such as CIMA’s ethical principles
• Motivation - the reasons why a person acted as they did
• Consequences - does the outcome of an action justify how it was carried

Question 16

What are the different approaches for ethical decisions?

Answer 16

• Egoists = Look after own need
• Pluralists = considers whether other stakeholders are compromised by the decision
• Absolutists = Concerned about whether a course of action is fundamentally incorrect (against the law)
• Consequentialists = focus on consequences before determining a course of action
• Utilitarians = Seek to maximize the benefit to society

Question 17

What are CIMA’s fundamental ethical principles?

Answer 17

• Professional competence and due care = remain up-to-date with current developments and are technically competent
• Integrity = straightforward, honest and truthful in all professional and business relationships
• Professional behaviour = behave in such a way that they are professional
• Confidentiality = keep confidential info unless given specific permission or there is a legal or professional right to reveal it
• Objectivity = founded on fairness and avoiding all forms of bias, prejudice and partiality

Question 18

What is corporate social responsibility ?

Answer 18

A set of actions which an organization is not obligated to take but takes them any for the well-being of stakeholders and the public

Question 19

What are the four types of CSR responsibilities?

Answer 19

1). Economic responsibilities : organizations should provide value for customer’s money, provide a return to shareholders and provide remuneration to staff

2). Legal responsibilities: It is expected of all organizations to follow legislation

3). Ethical responsibilities: Organizations should act in a fair and just way

4). Philanthropic responsibilities: Organizations may offer opportunities to improve society by, supporting the community they find themselves in or by donating to charities

Question 20

What are the corporate social responsibility strategies ?

Answer 20

• Proactive strategy : followed when the organization is prepared to take full responsibility for their actions
• Reactive strategy : when an organization allows a situation to continue unresolved until the public finds out about it
• Defense strategy : when they attempt to avoid additional obligations relating to a specific problem
• Accommodation strategy : when the organization takes responsibility for their actions

Question 21

What is corporate digital responsibility?

Answer 21

A concept that expanse on corporate social responsibility as to include data and digital devices

Question 22

What are the principles that are included in Corporate digital responsibility?

Answer 22

• Companies must engage in digital stewardship
• Companies need to develop strategy to manage customer expectations to greater digital transparency
• Companies should offer their customers digital empowerment by utilizing data under their control
• Companies can provide customers with greater digital quality
• Companies should grab the opportunity to practice digital inclusion

Question 23

What are the principles that are included in Corporate digital responsibility?

Answer 23

• Companies must engage in digital stewardship
• Companies need to develop strategy to manage customer expectations to greater digital transparency
• Companies should offer their customers digital empowerment by utilizing data under their control
• Companies can provide customers with greater digital quality
• Companies should grab the opportunity to practice digital inclusion