Governance And Ethics Flashcards
What is courage governance?
Cadbury Committee, 1992
“A system by which companies are directed and controlled”
Implicitly assuming that corporate governance is about the relationship between shareholders and directors with the auditors acting as the financial monitor.
About relationships
Companies and owners
Accountability being held
Behaviour of the board is generally monitored
Everyone seems to want good corporate governance
In the eyes of the law, the company is a separate entity
Marks and Spencer’s
Set of accounts
Not greater performance
Where they state “Transformation underway” things have to change to shareholders
Group secretary is responsible for corporate governance
She describes the UK corporate governance code
Comply and explain - codes aren’t laws but they are to be followed
Risk is shareholders are dissatisfied
Governance is part of their annual report
They state their board members
Gender diversity, experience, committee memberships - audit committees, exclusive or individuals
Detailed presentation of who the directors are, what they have been doing, review of the effectiveness, how they got nominated and now how they are getting remunerated
Includes an annual audit committee report which is a subsection of the corporate governance
Company financial statements at the end
Group = economic reality
Company = legal technicalities
Who is listed?
How quoted Companies behave and how shareholders and directors relate
Who is listed on stock exchange?
Premium
502 equity companies or legible companies
Investment trusts both open and closed
Standard
Debt
GDR
securitised derivatives
Governance code 2018
About complying or explaining
Principles rather than rules
Size - premium listing means greater requirement in comparison to a standard listing
System by which companies are directed and controlled
Companies do not exist in isolation
A company’s culture should promote integrity and openness, value diversity and be responsive to the views of shareholders and wider stakeholders.
Principle areas within the governance code
Board leadership and company purpose Division of responsibilities Composition, succession and evaluation Audit, risk and internal control Remuneration
Other stakeholders in the code
For the engagement with the workforce, one or a combination of these methods should be used:
A director appointed from the workforce
A formal workforce advisory panel
A designated non executive director
Ethics
Finance are not two concepts that naturally fit together. As far as its practitioners are concerned, finance is simply nothing to do with ethics. Outsiders believe that it has little do with ethics, but see it as s failing or something immoral - Hendry, J (2013) ethics and finance: An introduction. Cambridge.
Aristophanes 500BCE
“Moment they become wealth, that’s when theyi become unbearably and utterly evil”
Ethics falls into two roles
Normative ethics:
How we ought to live an act
Seeks to develop rules and principles so we will know right from wrong
Italian governments were going to stop rescuing migrants from North Africa
Applied ethics:
Aims to apply normative ethics to particular problems
E.g “usury” lend someone money and charge high interest
Wonga charging over 4,000% interest per annum
But ethics is not straightforward
What is ethical
Depends on your perceptions, your culture
Many with opposing views would both be utterly persuaded that they are ethical:
Tax avoidance when you have enough wealth
Freedom is a positive word
To live unshackled or to self-determination
New definition which is to live unshackled by perceived unreasonable taxes that support people who ought to get their lives together.
Hendry Grounds of moral judgement.
Cutlture: Moral norms Emotion: Moral feelings Reason:ethical arguments
Ethics and responsibility - for who?
Adam Smith, Wealth of nations 1776 sees employers needing to be treated with suspicion:
Alternative view:
Friedman 1962 -
Sees the task of the corporate manager as simply maximising profit for shareholders only subject to any legal constraints rather than broader concerns for other stakeholders or for society as a whole.
Views these as burdens on managements and an inappropriate tax on shareholders. - asking any more of them would diminish returns
Some would argue that the maximisation for one stakeholders group will by necessity to lead to an optimal outcome for others.
More than just shareholders
If you have a stake in the business then you are a legitimate stakeholder, whereas if you are just a normal stakeholder you might not HSBC any business
Big corporations are seen to have a more emphasised moral obligation to even the stakeholders as human according to human pg 130
How should performance measurement for other recognised stakeholders be assessed and reported?
Discussions have become a significant element in accounting research, as well as general management concern
2 reasons why we need regulation
Stigler G.J 1971
Protecting the public
Institutionally is primarily for the protection and benefit of the public at large or a sub class of the public.
Political
Second view is that the political process defies rational explanation: “politics” is a constantly and unpredictably shifting mixture of forces of the most diverse, comprehending acts of great moral virtue.
Is regulation red tape
Depends on your perspective
“Banning something in the UK is an unnecessary restraint of trade that stops US companies from selling something in the UK”
= red tape
Corporate governance is either valid or red tape depending on your point of view, to some extent, ethical basis
- Friedman, firms exist to maximise shareholder satisfaction and that is it.
