Corporate Governance & Social Responsibility Flashcards
Corporate governance reports are based on principles of…(4)
- Integrity
- Accountability
- Independence
- Good management
Corporate governance is…
…the system by which organisation are directed and controlled by senior officers
Integrity is…
…dealing honestly with employees, customers and all business contacts
Accountability is…
…the business being answerable for actions
Independence is…
…there must be independent people within the organisation checking that business is complying with codes of governance
Good management is…
…setting best practice guidelines
3 differing views (theories) of ownership and management:
- Stewardship theory
- Agency theory (Service own self-interest)
- Stakeholder theory (duty of care to wider community)
Corporate governance codes are based on a set of principles: (8)
- Minimise risk
- Ensure strategic objectives
- Fairness; minimise conflict of interest
- Establish clear accountability
- Maintain independence
- Accurate and timely reporting
- Encourage proactive involvement
- Promote integrity
Driving forces of governance development: (5)
- Increasing internationalisation and globalisation
- Domestic vs. foreign investors
- Financial reporting issues
- Significant influence (King Report)
- High-profile corporate scandals
Features of poor corporate governance: (8)
- Domination by an individual
- Lack of board involvement
- Lack of adequate control function (Internal audit; knowledge)
- Lack of supervision (Segregation of duties)
- Lack of independent scrutiny
- Lack of contact with shareholders
- Emphasis on short-term profitability
- Misleading accounts and information
Boards: ‘Tier’ system
- 1-tier boards (Directors legally charged)
2. 2-tier boards (Executive board monitored by a supervisory board)
Tasks of the board: scope of role: (10)
- Mergers & takeovers
- Acquisitions / disposals of assets
- Investments, capital projects, bank borrowing
- Loans
- Forex transactions
- Monitoring CEO
- Overseeing strategy
- Monitoring risks and controls
- Monitoring human capital aspects
- Effective internal and external communication of strategic plans
Non-executive directors…
…have no executive responsibilities
Advantages of non-executive directors: (4)
- External experience and knowledge
- Provide a wider perspective
- A comfort factor for 3rd parties
- Dual nature: Full board members whilst being the strong, independent element
Disadvantages of non-executive directors: (4)
- Lack independence
- Prejudice against recruiting non-executives
- Difficulty in imposing their views
- Limited time devoted to their roles
Number of non-executive directors…
…of sufficient character and number for their views to carry significant weight; a majority
Safeguards to ensure independence:
- No business, financial or other connection (no personal interests, conflicts of interest or day to day involvement)
- Not take part in share option schemes
- Appointed for a specified term
- Procedures for them to take independent advice (at company expense!)
The remuneration committee should determine both…
…the general remuneration policy AND specific remuneration packages
Main duties of the audit committee: (6)
- Review financial statements and systems
- Liaise with external auditors
- Review internal audit
- Review internal control
- Investigation involvement (One-offs)
- Review risk management (Separate risk committee?)
Reporting requirements: (10)
- Statement that (Combined Code) principles have been applied
- Complied throughout the period with provisions
- Directors explain their responsibility for preparing accounts
- Business is a going concern
- Board of directors (Composition, independence of NE’s, frequency of meetings)
- Remuneration, audit and nomination committee reports
- Relations with auditors
- Reviewed the effectiveness of internal controls
- Dialogue with shareholders
- Sustainability reporting Operating and financial review
Corporate Social Responsibility is (ill defined)…
…the provision of specific benefits to society in general
NOT THE SAME AS ETHICAL BEHAVIOUR
Social Responsibility strategies: (4)
- Proactive (Full responisbility; recalls)
- Reactive (continue until groups find out)
- Defence (minimise or avoid additional obligations)
- Accommodation (Encouragement or threat of government intervention)
Ethics are…
…values and principles that society expects companies and individuals to follow
Laws are…
…rules that a company and individuals must follow
The level of regulation: A scale of seriousness
Law –> corporate governance –> Social responsibility –> Ethics
