Impact of Governance on Strategy

Question 1

Roles of NEDs

Answer 1

Strategy
Scrutiny (not monitor)
Risk (audit committee)
People (remuneration, nomination)

Question 2

Roles of NEDs –> Strategy

Answer 2

Contributing to & challenging the direction of strategy

Question 3

Roles of NEDs –> Scrutiny

Answer 3

Scrutinise performance of management in meeting goals & objectives, monitor reporting of performance, represent shareholders’ interests (agency issues)

Question 4

Roles of NEDs –> Risk

Answer 4

Be satisfied that risks have been assessed properly & financial info is accurate & risk management systems are robust

Question 5

Roles of NEDs –> People

Answer 5

Determine appropriate levels of remuneration for execs
Key figures in appointment & removal of senior management & succession planning

Question 6

Remuneration of BOD

Answer 6

NEDs: fixed salary – limit incentive to misstate accounts
Execs: mostly performance-based – increase incentive for profitability, value creation

Question 7

Typical Board Committees

Answer 7

Audit
Remuneration
Nominations
Risk (not mandatory)

Question 8

Audit Committee

Answer 8

Responsible for liaising with IA, supervising IA & reviewing annual accounts & internal controls

Question 9

Remuneration Committee

Answer 9

Responsible for advising on exec remuneration policy & specific package for each director

Question 10

Nominations Committee

Answer 10

Responsible for recommending appointment of new directors to BOD

Question 11

Risk Committee

Answer 11

Responsible for overseeing risk management

Question 12

Core Governance Principles

Answer 12

Integrity
Transparency
Accountability
Responsibility

Question 13

Board of Directors (BOD)

Answer 13

Over 50% NEDs
Separation of chairman & CEO – unfettered powers of decision
Diversity – reduce ‘group think’