Corporate Manslaughter

Question 1

Corporate governance

Answer 1

The systems by which organisations are run and cvontrolled.

makes rules to how companies are run

Question 2

General aims of corporate governance

Answer 2

Ensure companies are run well within interests of shareholders and wider community

Managing a reduction of risk

Setting best practice guidelines

Providing an ethical and effective management framework

Building accountability -> making sure companies take the blame for their actions

Question 3

Examples of poo governance

Answer 3

Dominant board members
 Weak boards and lack of appropriate
knowledge and skills
 Lack of internal control
 Poor financial reporting
 Lack of stakeholder interaction

Question 4

Principle based approach to corporate governance

Answer 4

Comply or explain approach

Question 5

Rules based approach to corporate governance

Answer 5

Requirement to follow the letter of the law, face penalties
for non-compliance

Question 6

Advantage for rules based compliance

Answer 6

For the organisation:
◦ Clarity of what is expected to do
◦ Standardisation of what all companies need to do
◦ Legally binding and penalties encourage compliance

For the stakeholders:
◦ Standardisation means a level playing field is created
◦ Penalties provide a deterrent against companies being
poorly governed
◦ Confidence that rules will be complied with

Question 7

Disadvantages of rules based approach

Answer 7

For the organisation:
◦ Companies may look for loopholes in the rules
◦ The expectations is that companies need to paly by the
rules but they might not want to
◦ Less flexibility to apply rules in the best interest of the
company
◦ Creates a “check box” or “box ticking” mentality

For the stakeholders:
◦ Volume of regulation creates additional compliance
costs for businesses
◦ Increased legal costs to close loopholes as they are
found
◦ Fixed limits give no room for businesses to improve their
governance or do more than the minimum requirements
◦ A “box ticking” approach does not guarantee good
governance

Question 8

The OECD Principles of
Corporate Governance

Answer 8

Six principles:
 Ensuring the basis for an effective corporate
governance framework
 The rights of shareholders and key ownership
functions
 The equitable treatment of shareholders
 The role of stakeholders in corporate governance
 Disclosure and transparency
 The responsibility of the board

Question 9

Governance and Corporations -
The Role of the Board

Answer 9

Responsible for taking major policy and strategic
decisions
 The board of any company is expected to be:
 Independent
 Objective
 Sceptical
 Resourceful

Question 10

The UK Corporate Governance
Code – development

Answer 10

Cadbury (1992): formed part of the stock
exchange listing rules; introduced the comply or
explain principle, focus on board of directors (split
roles CEO and chairman)
 Greenbury (1995): Focus on director
remuneration
 Hampel (1998): Focus on resolving issues in
previous reports which were consolidated into the
Combined Code
 Turnbull (1999) Focus on directors reviewing and
reporting on internal control systems

Question 11

The UK Corporate Governance
Code – development

Answer 11

Higgs (2003): Focus on NEDs (guidelines on
their role)
 Tyson (2003): Focusing on recruiting and
developing NEDs
 Smith (2003): Focus on auditors and audit
committees and their relationship to the company
 Sir David Walker and the FRC (2010): Complete
review of CG following the financial crisis
2008/2009; Combined Code was found fit for
purpose and renamed as the UK Corporate
Governance Code

Question 12

The UK Corporate Governance
Code

Answer 12

It applies to premium listed companies
 It operates on the basis of “comply or explain”
 Although it is a “code” and not law, the listing rules
require that companies report on how they have
complied with it

Question 13

Board leadership and company purpose

Answer 13

Led by directors and entrepreneurial board, whose purpose is to promote long term success and sustainability of the business. As well as generating value for shareholders and contributing to wider society.

The board should establish the company’s purpose, values and strategy, and
satisfy itself that these and its culture are aligned. All directors must act with
integrity, lead by example and promote the desired culture.

The board should ensure that the necessary resources are in place for the
company to meet its objectives and measure performance against them. The
board should also establish a framework of prudent and effective controls,
which enable risk to be assessed and managed.

In order for the company to meet its responsibilities to shareholders and
stakeholders, the board should ensure effective engagement with, and
encourage participation from, these parties

The board should ensure that workforce policies and practices are consistent
with the company’s values and support its long-term sustainable success. The
workforce should be able to raise any matters of concern.

Question 14

Division of Responsibilities

Answer 14

Principles
 The chair leads the board and is responsible for its overall effectiveness in
directing the company. They should demonstrate objective judgement
throughout their tenure and promote a culture of openness and debate. In
addition, the chair facilitates constructive board relations and the effective
contribution of all non-executive directors, and ensures that directors receive
accurate, timely and clear information.
 The board should include an appropriate combination of executive and non-
executive (and, in particular, independent non-executive) directors, such that
no one individual or small group of individuals dominates the board’s decision-
making. There should be a clear division of responsibilities between the
leadership of the board and the executive leadership of the company’s
business.
 Non-executive directors should have sufficient time to meet their board
responsibilities. They should provide constructive challenge, strategic
guidance, or specialist advice and hold management to account.
 The board, supported by the company secretary, should ensure that it has the
policies, processes, information, time and resources it needs in order to
function effectively and efficiently

Question 15

Composition, Succession and
Evaluation

Answer 15

Principles
 Appointments to the board should be subject to a formal, rigorous and
transparent procedure, and an effective succession plan should be
maintained for board and senior management.4 Both appointments
and succession plans should be based on merit and objective criteria5
and, within this context, should promote diversity of gender, social and
ethnic backgrounds, cognitive and personal strengths.
 The board and its committees should have a combination of skills,
experience and knowledge. Consideration should be given to the
length of service of the board as a whole and membership regularly
refreshed.
 Annual evaluation of the board should consider its composition,
diversity and how effectively members work together to achieve
objectives. Individual evaluation should demonstrate whether each
director continues to contribute effectively.
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Question 16

Non executive directors

Answer 16

A non-executive director typically does not
engage in the day-to-day management of the
organization but is involved in policymaking and
planning exercises. In addition, non-executive
directors’ responsibilities include the monitoring
of the executive directors and acting in the
interest of the company stakeholders.

Question 17

What is a stakeholder

Answer 17

People who are affected by the way the company operates and the mechanisms and outcomes the way it happens.

Question 18

Audit, Risk and Internal Control

Answer 18

Audit, Risk and Internal Control
 Principles
 M. The board should establish formal and transparent
policies and procedures to ensure the independence and
effectiveness of internal and external audit functions and
satisfy itself on the integrity of financial and narrative
statements.7
 The board should present a fair, balanced and
understandable assessment of the company’s position and
prospects.
 The board should establish procedures to manage risk,
oversee the internal control framework, and determine the
nature and extent of the principal risks the company is
willing to take in order to achieve its long-term strategic
objectives.
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Question 19

Remuneration

Answer 19

It simply means your income or how much you get paid in monetary terms or compensation for doing work or service. For e.g. if you work in a restaurant you receive salary and extra bonuses. This is known as remuneration

Question 20

Remuneration

Answer 20

A clear and fair decision on pay it should be based on the businesses performance over time. There should be structure and monitor in place on how top executives and managers get paid. It’s directors job to decide pay based on past and current performances as well as perfomance and effort of employees before putting structure in place of payment policy.

Question 21

Committees - Benefits

Answer 21

Members: NED’s
 Exertion of control
 Advantages:
◦ Reduces board workload
◦ Best use of inherent expertise
◦ Demonstrates to shareholders that directors take
major issues seriously
◦ Demonstrates that risks and remuneration are
important to the business
◦ Compliance with CG and other codes and
regulations

Question 22

Audit Committee

Answer 22

Responsible for the organisation’s control and
overseeing internal and external audits
 Introduced in response to criticism that the
auditors were not sufficiently independent from
company’s directors
 Examples of responsibilities:
◦ Appointing, compensating and overseeing external
auditors
◦ Monitoring accounting and interim reports
◦ Reviewing internal controls and risk management
system

Question 23

Nomination Committee

Answer 23

Referred to as appointments committee.
 Helps and determines the structure of the board
and appoint new executive directors
 Examples of responsibilities:
◦ Reviewing the structure, size and composition of the
board
◦ Considering the balance between executive and
independent NEDs
◦ Ensuring diversity of the board composition
◦ Preparing job/ role descriptions
◦ Identifying and appointing new appointees to the board

Question 24

Remuneration Committee

Answer 24

Plays a primary role in establishing remuneration
arrangements of the executive directors
 Objectives:
◦ Seen to independent
◦ Has a clear remuneration policy that is understood and
supported by the shareholders
◦ Performance packages are to be aligned with long term
shareholders’ interest
◦ Reporting is precise and concise
Examples of the type of work performed by the
committee:
◦ Determining and reviewing the framework, policy and
specific terms of remuneration of the directors
◦ Recommending and monitoring the level of
remuneration of senior managers
◦ Establishing a pension policy for board members
◦ Setting detailed remuneration for executives
◦ Agreeing compensation for loss of office

Question 25

CSR

Answer 25

CSR can be described as the responsibility of a company
for the environmental and social impacts of its activities.

Question 26

Enlightened shareholder value (ESV)

Answer 26

s the idea
that corporations should pursue shareholder
wealth with a long-run orientation that seeks
sustainable growth and profits based on
responsible attention to the full range of relevant
stakeholder interests

Question 27

An approach from the UK

Answer 27

S172 Companies Act 2006
 Duty to promote the success of the company
 (1)A director of a company must act in the way he considers, in good
faith, would be most likely to promote the success of the company
for the benefit of its members as a whole, and in doing so have
regard (amongst other matters) to—
 (a)the likely consequences of any decision in the long term,
 (b)the interests of the company’s employees,
 (c)the need to foster the company’s business relationships with
suppliers, customers and others,
 (d)the impact of the company’s operations on the community and the
environment,
 (e)the desirability of the company maintaining a reputation for high
standards of business conduct, and
 (f)the need to act fairly as between members of the company.