SG 2 Governance - Structure

Question 1

Corporate governance is the connection of which 4 elements?

Answer 1

Executive management, board of directors, shareholders and stakeholders

Question 2

4 purposes of governance

Answer 2

• to reduce ambiguity and confusion in the organization
• to enhance the effectiveness of strategy, risk management, resource allocation, monitoring, and overall organizational effectiveness
• to enhance relationships between management and principals (owners and other stakeholders, including communities and society)
• to reduce the risk of organizational failure

Question 3

Who elects the board of directors?

Answer 3

Shareholders - public

Others - private

Question 4

What committees do directors create?

Answer 4

risk/nominating/audit/compensation + executive management

Question 5

What is the agency problem with regards to directors and executive management?

Answer 5

Directors have authority over the exec team - therefore should be no exec team on the board

Question 6

Two skills directors should have

Answer 6

Knowledge of industry

Willingness to challenge management decisions

Question 7

What does nominating committee do?

Answer 7

Evaluates boards effectiveness and size

Recommends new members for election and removal of members

Question 8

What does compensation committee oversee?

Answer 8

CEO comp including share management plans

Question 9

Audit committee duties

Answer 9

It deals directly with both the internal and external audit functions and is responsible for ensuring that appropriate systems of internal control have been established to prevent fraud.

• It is responsible for evaluating the external auditors’ qualifications and independence, and for monitoring their performance.
• It ensures that the financial reporting process complies with legal and regulatory requirements.
• It monitors new accounting standards and reviews current accounting policies for their appropriateness.
• It reviews an organization’s risk assessment.
• The composition should be as follows:

o All members must be independent of the organization, meaning that a member does not hold or has not held a position in the organization.

o Members must be financially literate.

o Every audit committee must have at least three members.

Question 10

What is executive management responsible for?

Answer 10

• implementing the decisions made by the Board of Directors.
• executing the board approved strategic plan
• overseeing the enterprise-wide operations
• meeting regularly with the Board of Directors to allow for appropriate oversight by the board
• providing timely and accurate information to the board to allow for better decision making
• creating a culture of integrity within the organization to encourage ethical behaviour
• providing an assessment of policies, procedures, and controls to the board
• identifying, understanding, assessing, mitigating, and monitoring the risks that impact the organization and its strategic objectives
• reviewing the risk management policies and practices to ensure that they remain appropriate and effective in light of changing circumstances and risks

Question 11

Shareholders rights

Answer 11

• Participate and vote at the shareholders’ meeting.
• Nominate and elect directors to the board.
• Receive copies of the financial statements.
• Approve the organization’s bylaws and any bylaw changes.
• Approve the appointment of the external auditor of the corporation (or waive the requirement for an audit).
• Approve major or fundamental changes (such as those affecting a corporation’s legal structure, the divestiture of the business, or the acquisition of another business using the company’s own shares as consideration when there are significant dilution implications for existing shareholders).