Governance Role of BOD and Internal Control

Question 1

What are some specific tasks of the BOD?

Answer 1

• Setting strategic direction: Establishing the company’s vision mission and values.
• Delegating responsibilities to management, and monitoring their performance.
• Ensuring the company’s affairs are managed under the corporate governance framework.

Question 2

What are NEDs?

Answer 2

Non-Executive Directors:
Provide an independent perspective on the board, contributing to its decision-making process without the potential conflicts associated with executive roles.

Question 3

Why are NEDs important?

Answer 3

Bring independence and objectivity to the board’s deliberations, particularly in monitoring senior management and ensuring the integrity of financial statements.

Question 4

Functions of NEDs?

Answer 4

• Scrutinizing the performance of management in meeting agreed goals and objectives.
• Contributing to the development of strategy through independent oversight.

Question 5

What key challenge faces NEDs?

Answer 5

• Ensuring independence from management to avoid conflicts of interest.
• e.g. Enron scandal: Lack of rigorous oversight by NEDs contributed to company’s unethical practices and eventual collapse

Question 6

What are the two types of board structure?

Answer 6

• One-tier (unitary)
• Two-tier

Question 7

One-tier (Unitary) Boards?

Answer 7

• Include both executive and non-executive directors
• Common in anglo-saxon countries

Question 8

Two-tier Boards?

Answer 8

• Separate governance into management and supervisory boards
• Prevalent in many european countries

Question 9

Leadership and independence within boards?

Answer 9

• The separation of the roles of CEO and chairman is advocated to prevent undue concentration of power.
• e.g. JP Morgan: The dual role of CEO and Chairman held by Jamie Dimon has sparked debated over governance efficacy.

Question 10

Diversity within boards?

Answer 10

• Emphasises not just demographic diversity but also diversity in skills and experiences.
• e.g. Apple: Recognised for increasing its board diversity - linked to innovative strategies.

Question 11

What is the significance of board failures?

Answer 11

Board failures, often highlighted by financial scandals or corporate collapses, prompt significant changes in CG practices to address the deficiencies identified.

Question 12

Examples responses to CG failures?

Answer 12

• Enhanced regulations and standards for board conduct
• Greater emphasis on risk managment and internal controls
• Increased focus on board composition and the qualifications of directors to ensure they are equipped to oversee complex organisations.

Question 13

Examples of board failures and their outcomes?

Answer 13

• Examples include Enron and WorldCom, where board failures in oversight led to massive frauds
• Such failures have prompted stricter regulations, such as the Sarbanes-Oxley Act in the US, which mandates for more stringent accountability standards for boards.