Misc questions/issues. Flashcards
What are the arguments for the application of corporate governance codes of practice to large companies?
Eliminate the risk of misleading/false financial reporting. Prevent companies from being dominated by self-seeking CEOs or Chairmen.
Protect investors through preventing risks of corporate scandals and promoting fairness, accountability, responsibility and transparency.
Argument that companies that comply with best practice in corporate governance are more likely to achieve success.
Leads to strong reputation and therefore less exposed to reputation risk.
Encourages investors to hold shares for the longer term rather than short-term profits.
Why should institutional investors want companies to comply with a code of corporate governance?
May be reluctant to invest in companies that do not comply or do not comply with comparable governance standards.
Encourages companies to carry out good governance and stay accountable to its shareholders.
If a company complies with a code of corporate governance it is less likely to be exposed to various risks including those that may damage its reputation, lose business, breach regulation or laws and be forced to pay penalties.
Protect the interests of its stakeholders.
Encourages the directors to maintain good dialogue with shareholders and align their interests and consider any concerns that they may have.
According to Higgs, what are the 4 broad roles of NEDs?
- STRATEGY - constructively challenge and contribute to the development of strategy;
- PERFORMANCE - scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance;
- RISK - satisfy themselves that financial info is accurate and that financial controls and systems of risk management are robust and defensible;
- PEOPLE - responsible for determining appropriate levels of remuneration of exec directors and have a prime role in appointing/removing senior management and in succession planning.
