Governance and ethics

Question 1

The agency problem

Answer 1

The principle (shareholders) hire the agent (management). However objectives of shareholders are often not objectives of management

Question 2

Perspectives on corporate governance

Answer 2

Public policy perspective - interests of the public are met
Stakeholder perspective - strike a balance between economic and social goals + individual and communal goals
Corporate perspective - generally accepted aim of the company is to maximise profits

Question 3

Financial systems

Answer 3

2 functions;
- Facilitation of lending and borrowing money
- Transmission of money
3 elements;
- Intermediaries e.g banks
- Securities
- Markets; primary, secondary, capital and money

Question 4

2 types of financial system

Answer 4

• Bank based financial system e.g france, germany

- Market based financial system e.g UK and USA

Question 5

Hofstede model for cultures affecting governance

Answer 5

• Power distance - acceptance of superiority due to job role
• Uncertainty avoidance - how comfortable citizens are with uncertainty and ambiguity
• Individualism and collectivism - whether a country prioritises the performance of individuals or teams
• Masculinity/ femininity - M, fact based and aggressive - F, prioritise work life balance, diversity
• Long/short term orientation - a countries time horizon for planning and performance measurement
• Indulgence vs restraint - attitude towards personal gratification and fun

Question 6

Principles based approach to governance structure

Answer 6

influenced to adhered to OECD principles;

• Promoting transparent and efficient markets
• Equitable treatment of all shareholders
• Relationships with institutional investors, stock markets and intermediaries
• Rights of stakeholders in corporate governance
• Accurate and timely disclosure and transparency of financial performance
• Responsibilities of the board and accountability to shareholders

Question 7

Shareholder led approach to governance structure

Answer 7

UK and US are more shareholder led. Places more emphasis on role of shareholders

Question 8

Types of board structure

Answer 8

• Unitary board (UK) - management and reporting
• Dual board (Germany)
  
  • Management board (run the company)
  • Supervisory board (oversee management)

Question 9

Governance and private companies

Answer 9

Not required to comply with UK corporate Governance Code because they are private.

Question 10

Nolan ethics principles

Answer 10

Integrity
Objectivity
Accountability
Openness
Honesty

Question 11

The institute of business ethics principles

Answer 11

Respect 
Transparency
Fairness
Openness
Trust

Question 12

Promoting ethical leadership

Answer 12

• demonstrate leadership
• recognise the value or culture
• be open and accountable
• embed and integrate
• assess, measure and engage
• align values and incentives
• exercise stewardship