P12. Oversight by Regulators Flashcards
When was the first version of the UK Corporate Governance Code produced?
1992
Who produced the 1992 UK Corp Gov Code
The Cadbury Committee
Definition of corp gov as per cadbury committee
The system by which companies are directed and controlled
UK CG Codes advise on board appraisal
FTSE350 companies undertake independent board evaluation exercise at least once every three years, complemented by formal and rigorous annual evaluation of performance of board, committees and individual directors
What is the fundamental key to a board evaluation exercise?
Knowing what it is expected to achieve
4 main reasons for undertaking board evaluations
Address specific need identified by the board
Requirement to benchmark board performance externally
Ensure board is as effective as it can be
Directors observing benefits of previous evaluations
Internal board eval - pro - Cost
Cheaper
Internal board eval - pro - Objectivity
An internal evaluator might already know what types of common issues to ignore as not being relevant to their board
Internal board eval - pro - Focus
Issues may well already be known to the evaluator saving time in trying to establish the problems and concentrating on finding solutions
Internal board eval - pro - Ease of undertaking
Quicker as no need to bring external consultant up to speed
Internal board eval - pro - Expertise
High degree of company and industry knowledge
Internal board eval - con - Cost
Saving money is not the goal of board evaluation
Internal board eval - con (counterpoint) - Objectivity
An internal evaluator is likely to have preconceived ideas and lack of objectivity
Internal board eval - con - Focus
Internal evaluator may not be able to bring external experience to bear
Internal board eval - con - Ease of undertaking
An internal evaluator is likely to require more time to conduct research, assess different types of evaluation and the time to write the report will be competing for their time with their normal daily duties
Internal board eval - con - Expertise
Lack of evaluation expertise
External board eval - pro - Cost
Expertise is expensive (ie. higher cost implies better skill)
External board eval - pro - Objectivity
External evaluators should not have preconceived ideas or any agenda to pursue and will be seen as independent
External board eval - pro - Focus
May identify issues that internal evaluators are unaware of or have discounted through familiarity
External board eval - pro - Ease of undertaking
Whilst company specific knowledge will be poor, an expert external evaluator is likely to be able to conduct their research, interviews and complete their report quicker as that is their sole focus
External board eval - pro - Expertise
Expert board evaluators with lots of experience
External board eval - con - Cost
Expense of hiring external consultant
External board eval - con - Objectivity
An external evaluator may need to ask a broader range of questions in order to identify areas of concern or where improvement can be made
External board eval - con - Focus
More difficult for an external evaluator to identify key relevant issues and might suggest solutions that are not appropriate or relevant to the company’s situation
External board eval - con - Ease of undertaking
Time required to brief external consultant on company and industry issues/practices
External board eval - con - Expertise
Potential lack of company or industry specific factors
8 broad categories of stakeholder
Members
Directors
Creditors
Suppliers
Local community
Employees
Environment
Government
Criteria for company needing to publish corp gov statement
2,000 employees, or £200m turnover & balance sheet £1b
What must the ‘statement of corporate governance arrangement’ state?
Either
Which code has been applied, how it has been applied, and the reasons and respects in which it departed from the code
Or
Explain the reasons for not applying any code, and explain arrangement for corp gov that were applied
Which organisation regulates all companies?
BEIS - Department for Business, Energy and Industrial Strategy
If BEIS appoints inspectors, who do these tend to be?
An accountant and a barrister
Do BEIS inspectors have right of entry or right to undertake search of business?
No
What do BEIS inspectors have powers to do?
Require company and any officers or agents to produce documents and be questioned by inspectors
Can BEIS inspectors require production of docs, and interview bankers, solicitors and auditors? why?
Yes, because these are considered agents of the company
When will an application for warrant to enter and search premises be made?
If request for docs is ignored, or if there are reasonable grounds for believing certain documents have not been produced
What will the warrant authorise a police officer to do? (4)
Enter premises
Search and take possession of relevant documents
Take copies of such documents
Require explanations concerning documents from persons on premises
What are the 6 categories of BEIS inspection?
Appointment of inspectors to investigate affairs of the company
Investigations into ownership of company
Investigations of directors’’ share dealings
Production of documents
Investigations to assist overseas regulatory authorities
Investigations under FSMA2000
What do HMRC typically investigate?
Tax returns and claims for tax credits and allowances
What is the FCA?
Financial Conduct Authority
What is the PRA?
Prudential Regulation Authority
