Corporate Manslaughter Flashcards
Corporate governance
The systems by which organisations are run and cvontrolled.
makes rules to how companies are run
General aims of corporate governance
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
Examples of poo governance
Dominant board members
Weak boards and lack of appropriate
knowledge and skills
Lack of internal control
Poor financial reporting
Lack of stakeholder interaction
Principle based approach to corporate governance
Comply or explain approach
Rules based approach to corporate governance
Requirement to follow the letter of the law, face penalties
for non-compliance
Advantage for rules based compliance
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
Disadvantages of rules based approach
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
The OECD Principles of
Corporate Governance
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
Governance and Corporations -
The Role of the Board
Responsible for taking major policy and strategic
decisions
The board of any company is expected to be:
Independent
Objective
Sceptical
Resourceful
The UK Corporate Governance
Code – development
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
The UK Corporate Governance
Code – development
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
The UK Corporate Governance
Code
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
Board leadership and company purpose
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.
Division of Responsibilities
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
Composition, Succession and
Evaluation
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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