Module 3 Corporate Governance Flashcards
What is Corporate Governance?
Corporate governance is the system by which companies are directed and controlled
What is an Agency Risk?
Agency risk is that the self-interest of the agents (ie the directors) deviates from that of the principal (the shareholders).
What was the Cadbury Code?
-Gave definition to Corporate Governance
- Board of directors most important Corporate Governance mechanism
What was the Greenbury code ?
Highlighted deep concerns with excessive directors pay packages
What was the Hampel report?
Emphasised need to maintain a principles based approach to Corporate Governance
What was the Turnbull report?
It represented an attempt to formalise an explicit framework for internal control in companies.
What was the Smith report?
Highlighted the role of the audit committee, acting independently from the executive, to ensure that the interests of shareholders are properly protected in relation to financial reporting.
What was the Higgs report?
Related to Non executive directors
The report recommended including a greater proportion of NEDs on boards and reviewing their remuneration.
Which companies are required to adhere to corporate governance code?
Only companies with a premium listing on the LSE are required to adhere to the Code.
What are the duties of the board?
-Statutory duties - to adhere to company law, health and safety laws, other applicable laws and regulations
- To act as an agent of the company, meeting the legal obligations this creates
- To be accountable to shareholders and stakeholders
The UK Corporate Governance Code requires companies to have three committees:
1) Audit committee
2) Nominations committee
3) Remuneration committee
An effective board should:
Have a clear strategy aligned to capabilities
Implement that strategy vigorously
Monitor key performance drivers
Manage risks effectively
Focus on the views of investors and other key stakeholders
What does the FRC stipulate about directors remuneration?
It should be:
- Strategic and sustainable
- Transparent and impartial
- Appropriate and not excessive
What does a directors remuneration report contain?
- A statement by the chair of the remuneration committee
- The company’s policy on directors remuneration
- Information on how the remuneration policy was implemented in the financial year being reported on
What are institutional investors?
- Are companies that invest money on behalf of other people
- Bank, Pension funds and Insurance companies are examples of institutional investors
