Governance, Corporate Responsibility and Ethics Flashcards
What is defined
A set of relationships between a company’s management, board, shareholders and other stakeholders that provides the structure through which objectives of the company are set, attained and monitored
Corporate governance
What perspective of CG is described
To maximise wealth of shareholders, provide it conforms to rules of society (laws and customs)
Corporate
What perspective of CG is described
Ensure company meets objectives of SH + other individual groups with a stake + interest of public at large
Public policy
What perspective of CG is described
a balance between economic and social goals and between individual and communal goals, framework should encourage efficient use of resources through efficient investment, require accountability from senior management to shareholders and align interests of shareholders and companies with those other stakeholders
Stakeholder perspective
What perspective of CG is described
Directors required to act in the best interest of the company when acting as stewards of company’s resources. most directly related to solving principal agent problem
Stewardship perspective
Four perspectives of CG
corporate
public policy
stakeholder
stewardship
Five key elements which drive good corporate governance
BOD
Senior management
SH
External Auditors
Internal Auditors
what are the two types of financial system
bank based and market based
Continental European systems especially France and Germany and Japan are what kind of financial system
bank based system
What kind of financial system is described
Households prefer to bear little risk allocate more financial assets to cash and cash equivalents, have little access to investment in physical assets, where they do invest, done via intermediaries,
more government regulation,
banks concentrated and integrated
bank lending most important source of business finance
Banks and buinsess highlight integrated
markets are volatile and speculative
Bank based
What kind of financial system described
Household bear more risk
greater access to investment in physical assets
indirect investment via intermediaries institutional SH have lots of influence
markets more important than bank for LT finance
comparatively unregulated
banks are more fragmented
banks have fewer close relationships with businesses lend to
Market based
what represents the dominant force in external finance in a market based system
institutional Sh
What represents the dominant force in external finance in a bank based system
Banks
What is described
code of practice embodying SH led approach to CG, includes requirements of international SH and the company themselves
UK CG code
Five main principles for companies in CG code
leadership
Board effectiveness
Accountability / audit
Remuneration
Investor relationships
Who are the following roles of
provide leadership to board ensure effective and set agenda
cooperate in induction and development of new members
facilitate board appraisal
take lead in providing induction programme for new directors and in board development
Chairman
Who are the following roles of
provide accurate and timely info
communicate effectively with stakeholders
facilitate effective implementation of board decisions
cooperate with all members of the board
CEO
Which committee
at least three independent NED (two if small), review FS and recommend external auditors, reviewing on an ongoing basis their independence and setting policy on provision of NAS
Audit Committee
Which committee
at least three independent NED (two in smaller companies), responsible for overall policy on remuneration and recommending remuneration package for individual executive directors. Levels of remuneration should be sufficient to attract, retain and motivate directors. A significant proportion of salary should be performance related pay. Level of pay for NED should reflect time commitment and responsibilities of the role
remuneration committee
Which committee
At least three members, majority independent NED,
responsible for recommending appointments of NED and ED to the board
Nomination committee
What are the two types of structure for the BOD as a whoel
unitary board
dual/supervisory board split between management and supervisory
What board is described
responsible for both management of the business and reporting to SH via FS and SH metings
Unitary board
What board is described
Split between management board - responsible to manage company using similar powers to unitary board and supervisory board who are independent separate board elected by shareholders and employees, often comprising of a series of committees with delegated powers
Dual/supervisory board
Role of executive directors are evaluated in line with the UK CG code on the basis of
effectiveness of contribution and time commitment to the role
T/F
The chairman may be a member of, but may not chair the remuneration committee
True
A process, created by a BOD, Management or other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations reporting and compliance
Internal control
COSO - Five components of effective IC
Control environment
Regular risk assessment (annual review at least)
Control activities
Information and communication
Monitoring
Auditors of listed companies must also report on
directors remuneration report
Companies compliance with UK CG code
For small listed companies outside FTSE 350, what is the minimum number of NEDs on the board
two
Are full time executive directors of FTSE 100 companies allowed to take on chairmanship of another FTSE 100 company
No
Who is responsible for maintenance of sound risk management and IC system
the entire BOD
what is defined
a system of behaviour deemed acceptable in the society or context under consideration, tells us how to behave
ethics
What is defined
a business culture where the basic values and beliefs in a company encourage people within the company to behave in line with acceptable business ethics
Ethical culture
What are the relevant Nolan principles for starting point for business values
Integrity
Objectivity
accountability
openness
honest
Institute of business ethics lists further business values which are
fairness,
responsibility
trust
transparency
truth
Statutory requirements of business
equal opportunities
No discrimination on any grounds
Freedom of information
What is defined
the application of ethical values to business behaviour and functions. goes beyond legal requirements for business and is about discretionary decisions and behaviour guided by values
business ethcs
Levels of society expectations effects
overall level
specific company level
level of individuals in the company
What is defined
the commitment the business makes to its stakeholders to increase positive impacts and decrease its negative ones
Corporate Responsibility
How can an ethical culture be promoted
Ethical leadership
codes of ethics/business conduct
policies and procedures to support ethical behaviour
Attributes and behaviours of ethical leadersq
openness
courage
fair mindedness
ability to listen
honest
