Lesson 10 Additional Items Flashcards
Items covered by CA2006
1- directors duties section 171-172
2–requirement for UK listed companies to have a company secretary section 271
3-Qualifications of a company secretary
4- shareholder rights
5- disclosure requirements- eg strategic reporting, miscellaneous reporting regulation
5- disclosure of shareholder information
6-requirement for companies to keep accurate financial records Eg financial statements
Tools and techniques for Board effectiveness
Board defines strategy and purpose of company underpinned by its values
Board is responsible for the financial health of company and must take long term view
There should be clarity on matters reserved for the board
Effective decision making requires directors not have any conflicts of interest, have access to good quality information
It is important that Board directors understand their responsibilities under Companies Act 2006 sections 171-177
Before director must ensure directors receive high quality, accurate information on timely basis
Board chair should promote open discussion and their should be a culture of accountability
Board chair should foster participation and engagement from all parties - NEDs should share specialist advice and provide constructive challenge- management should be held to account for performance
There should be an appreciation and consideration for views of the shareholders and other stakeholders including views of the workforce
Information should call out key risks
Information (particularly risks) should not be considered in silo
Board composition
The size of the board should be based on number of factors including
the size and complexity of the company,
requirements set in the articles of association and UK corporate governance code (eg more than 50% independent non executive directors),
the need for separation of responsibility between chair and ceo.
The need for balanced board (independent chair, INEDS,, SID, NEDs, ED). Which also takes into account gender, ethnic and cognitive diversity and
the need to service and support board level committees (eg Audit CoRemuneration Co and Nomination Committee)
Consideration should be give to required skills, knowledge and experience
Role Board Chair
The chair must lead the Board
Set the board agenda keeping in mind strategy, purpose and values.
Promote open debate at Board with emphasis on culture and accountability
Encourage other board directors to provide their views, specialist advice and constructive challenge
Ensure boards directors have high quality information needed to make effective decisions. Materials must be distributed on a timely basis
Board chair should mentor new directors
Board chair should engage regularly with shareholders and ensure the views of shareholders and stakeholders are taken into consideration
The board chair is responsible for ensuring the effectiveness of the board and
The board chair must lead the annual self evaluation process
Board chair should also promote a constructive working relationship with the chief executive
Role of the CEO
To set an example for employees
Support the board chair
Propose strategy
Implement strategy approved by the board
The CEO should also communicate the view of senior management at the board as well as the views of the employees
At the board meeting the CEO is an executive director and must adhere to the directors duties set out in sections 171-177 of the company’s act 2006.
Corporate Social Responsibility
There is no single definition but CSR is essentially the way in which companies integrate environment, social and governance factors into their business model.
CSR is becoming increasingly more important and pre the Companies Act 2006, companies are expected to report on CSR within their narrative reporting as part of the annual financial reports.
Their are several types of CSR:
1-Philanthropy eg Patagonia
2-Pet projects
3-Partnerships eg McDonalds
4-Propaganda eg Virgin
CSR reporting is mandatory for listed companies.
Non financial reporting -
Integrated reporting
The financial statements are yesterdays news (contain historical information)
They do not represent the entire picture
Integrated reporting helps to provide a more complete picture and allow for more informed decision making
Integrated reporting considers other types of capital aside from just financial capital. These 6 other types of capital include
1- Human capital
2- Intellectual capital
3- Manufacturing capital
4- financial capital
5- social capital
6- relationship capital
7- natural capital
These types of items are currently reported on in the strategic report as part of companies act 2006 strategic and miscellaneous reporting requirements
This reporting is not audited and it is more qualitative than quantitative but it is a step in the right direction in terms of providing a fuller view of companies position
Non financial reporting -
Triple bottom reporting
The term Triple Bottom Reporting was first introduced by John Ellington in 1994
He argued the the true cost of doing business required consideration of environmental and social costs.
Focus on the three ps - people, planet and profit
Risk and internal controls
The management of risk is a core part of corporate governance.
It requires the development of structures, policies and procedures and companies should create a good culture within their organization to promote openness and accountability with regard to risk.
The board is responsible for oversight of principle risks
On at least an annual basis their should be a review of internal risk and control system
There should be an understanding of how risks and controlled (prevented, detective and mitigating controls)
And an ongoing monitoring of risk vs risk appetite
The risk management framework should include the following components
1- identification of principal Risks (stress testing to quantify likelihood and size /magnitude of risk
2- approval of risk appetite
3- setting controls
4- monitoring adherence
5- reporting and escalation
Equator principles
Risk management framework for determining, assessing and managing environmental and social risks in projects.
Coso - internal control framework/ system
Committee of sponsoring organization
An internal control system in the U.S. used to provide assurance around
- effectiveness of operations
- reliability of financial reporting
- compliance with law and regulation
Shareholders
There are several types of shareholders
1-members - whose names appear on the shareholder registration
2- beneficial owners - ultimate owners of shares - may not be member
3- custodians / nominees - hold shares on behalf of a member
4- retail shareholders- buy and sell shares for their personal account
5-institutional shareholders - trade large quantities of securities on behalf of multiple beneficiaries
Activism - vigorous campaigning to bring about social change
Shepherded activism- directors should do what they (owners) say
Wolfpack activism - multiple activists targeting a company to gain influence
Shareholders Rights
Documented
- shareholder agreements
- Articles of Association
- legislation CA 2006
- case law
- Corporate governance code
Rights include
Voting rights
Right to information
Right to attend AGM
Right to dividends
Right to fair and equal treatment
Ownership and transfer rights
