Session Three: Governance

Question 1

The Choice of Systems - Board Structure

Answer 1

1. Unitary
   – Single Comprising Board
   — executive directors & neds (non-executive directors)
2. Two-Tier (dual)
   – Two Boards
   — management board (lower tier) and supervisory board (upper tier)

Question 2

Unitary Boards and Committees

Answer 2

Chair, executive directors, audit, nomination, remuneration, NEDs

NEDs should be majority, chair and CEO should not be the same, chair should be independent (ned)

Question 3

Director’s Legal Duties in the EU

Answer 3

Across Europe, director’s duties are primarily owed to the company and not to the shareholders.
- however, can be differences, like in the UK company law is more “shareholder friendly”

Member States may conceptualise the company and the role of directors and shareholders in two ways

– the shareholders may be seen as the source of corporate power and the directors as agents with the authority to make decisions on behalf of the company by way of delegation from shareholders (i.e. UK, English law)

OR

– The directors may be qualified as “stand-alone” actors who act independently of the shareholders

Question 4

The Mighty Shareholder (English view)

Answer 4

Shareholders own the company, but they can only exercise control collectively

Most shareholders are “ordinary” shareholders
- preference shares

Shareholders resolution = 50%+
– e.g. direct the Board to take or not take certain actions

Special Resolution - 75%+
– where required by AoA or by company law, e.g. to amend AoA, create new shares, issues more shares

Question 5

Eyes and Ears of Shareholders

Answer 5

-Company Secretary
- Auditors
- Proxy advisors
-Brokers and analysts
- Activist investors (NGOs)
- Investment / pension funds

Question 6

The Role of Auditors

Answer 6

– The outside, independent auditor is engaged to give an opinion on whether a company’s financial statements are presented fairly in all material respects and in accordance with applicable financial reporting frameworks.

– The audit should provide users such as lenders and investors with an enhanced degree of confidence in the financial statements.

– To form an opinion, the auditor gathers appropriate and sufficient evidence and observes, tests, compares and confirms until gaining reasonable assurance.

– The auditor then forms an opinion as to whether the financial statements are free of material misstatement, whether due to fraud or error.

Question 7

EU Law and White Collar Crime

Answer 7

• Criminal law enforcement a matter for EU member states
• Whistleblower Protection Directive
  – strong signal that individuals seeking to expose wrongdoings in public and private sectors

Question 8

Catalogue of Corporate Crime

Answer 8

• Fraud
• Bribery
• Insider Trading
• Embezzlement
• Money Laundering

Question 9

Crime Doesn’t Pay…. (consequqnces)

Answer 9

• conviction = fine and/or imprisonment
• directors disqualification
• dismissal for gross misconduct
• confiscation orders
• civil damages (compensation) actions
  – increasingly common