P12. Oversight by Regulators

Question 1

When was the first version of the UK Corporate Governance Code produced?

Answer 1

1992

Question 2

Who produced the 1992 UK Corp Gov Code

Answer 2

The Cadbury Committee

Question 3

Definition of corp gov as per cadbury committee

Answer 3

The system by which companies are directed and controlled

Question 4

UK CG Codes advise on board appraisal

Answer 4

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

Question 5

What is the fundamental key to a board evaluation exercise?

Answer 5

Knowing what it is expected to achieve

Question 6

4 main reasons for undertaking board evaluations

Answer 6

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

Question 7

Internal board eval - pro - Cost

Answer 7

Cheaper

Question 8

Internal board eval - pro - Objectivity

Answer 8

An internal evaluator might already know what types of common issues to ignore as not being relevant to their board

Question 9

Internal board eval - pro - Focus

Answer 9

Issues may well already be known to the evaluator saving time in trying to establish the problems and concentrating on finding solutions

Question 10

Internal board eval - pro - Ease of undertaking

Answer 10

Quicker as no need to bring external consultant up to speed

Question 11

Internal board eval - pro - Expertise

Answer 11

High degree of company and industry knowledge

Question 12

Internal board eval - con - Cost

Answer 12

Saving money is not the goal of board evaluation

Question 13

Internal board eval - con (counterpoint) - Objectivity

Answer 13

An internal evaluator is likely to have preconceived ideas and lack of objectivity

Question 14

Internal board eval - con - Focus

Answer 14

Internal evaluator may not be able to bring external experience to bear

Question 15

Internal board eval - con - Ease of undertaking

Answer 15

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

Question 16

Internal board eval - con - Expertise

Answer 16

Lack of evaluation expertise

Question 17

External board eval - pro - Cost

Answer 17

Expertise is expensive (ie. higher cost implies better skill)

Question 18

External board eval - pro - Objectivity

Answer 18

External evaluators should not have preconceived ideas or any agenda to pursue and will be seen as independent

Question 19

External board eval - pro - Focus

Answer 19

May identify issues that internal evaluators are unaware of or have discounted through familiarity

Question 20

External board eval - pro - Ease of undertaking

Answer 20

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

Question 21

External board eval - pro - Expertise

Answer 21

Expert board evaluators with lots of experience

Question 22

External board eval - con - Cost

Answer 22

Expense of hiring external consultant

Question 23

External board eval - con - Objectivity

Answer 23

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

Question 24

External board eval - con - Focus

Answer 24

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

Question 25

External board eval - con - Ease of undertaking

Answer 25

Time required to brief external consultant on company and industry issues/practices

Question 26

External board eval - con - Expertise

Answer 26

Potential lack of company or industry specific factors

Question 27

8 broad categories of stakeholder

Answer 27

Members Directors Creditors Suppliers Local community Employees Environment Government

Question 28

Criteria for company needing to publish corp gov statement

Answer 28

2,000 employees, or £200m turnover & balance sheet £1b

Question 29

What must the 'statement of corporate governance arrangement' state?

Answer 29

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

Question 30

Which organisation regulates all companies?

Answer 30

BEIS - Department for Business, Energy and Industrial Strategy

Question 31

If BEIS appoints inspectors, who do these tend to be?

Answer 31

An accountant and a barrister

Question 32

Do BEIS inspectors have right of entry or right to undertake search of business?

Answer 32

No

Question 33

What do BEIS inspectors have powers to do?

Answer 33

Require company and any officers or agents to produce documents and be questioned by inspectors

Question 34

Can BEIS inspectors require production of docs, and interview bankers, solicitors and auditors? why?

Answer 34

Yes, because these are considered agents of the company

Question 35

When will an application for warrant to enter and search premises be made?

Answer 35

If request for docs is ignored, or if there are reasonable grounds for believing certain documents have not been produced

Question 36

What will the warrant authorise a police officer to do? (4)

Answer 36

Enter premises Search and take possession of relevant documents Take copies of such documents Require explanations concerning documents from persons on premises

Question 37

What are the 6 categories of BEIS inspection?

Answer 37

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

Question 38

What do HMRC typically investigate?

Answer 38

Tax returns and claims for tax credits and allowances

Question 39

What is the FCA?

Answer 39

Financial Conduct Authority

Question 40

What is the PRA?

Answer 40

Prudential Regulation Authority