Strategy and Governance - Governance Structure, Compliance and Ethics Flashcards
What is the purpose of governance
It is to reduce ambiguity and confusion in the organization
- Enhance the effectiveness of strategy, risk management, resource allocation
- To enhance the relationship between management and the principal
- To reduce the risk of organizational failure
What factors are determined for each corporate governance practice
- Their size ( the number of directors, # of committees)
- Ownership structure (Principal owed, publicly held, NFP)
- Nature, scope and complexity of operations.
Who are the key players in the corporate governance structure
- Shareholders (other relevant external stakeholders, regulators)
- BOD (various committees)
- Executive management
Shareholder - (Elect) - BOD
BOD - (appoint) - Executive management
BOD - (appoint) - Committee, Audit Committee
Explain the role of the CEO and Board of Directors. And explain the principal-agent problems
CEO - responsible for the operations of the entity company
BOD - provide strategic direction to the organization and oversight of management activities
- Create a committee responsible for different issues
Principal-agent problem - Where executive management is part of the BOD. Not looking for the best interest of the shareholders.
What is the audit committee and what is the purpose of the committee
Audit committee - Board committee that oversees the quality and integrity of the organization’s financial and operating factor
Purpose of the audit committee - Deal directly with both and external audit function and is responsible for ensuring that an appropriate system of internal control
- Responsible for evaluating external auditor qualifications & independence for monitoring their performance
- Review organization risk assessment
Who should be in the composition of the audit committee
- All members must be independent of the organizational members, do not hold or have held a position in the organization
- Members must be financially literate
- Every audit committee must have at least three members
What are the responsibilities of the BOD for publicly traded companies
- Adopting a strategic planning process and least annually, approving the strategic plan
- Monitoring the organization’s controls and information system
- Developing the role and responsibilities for the chairperson
- Appoint CEO and ensure succession plan
- Assessing executive management performance and compensation
- BOD range from 3 -30 directors
- Must have a duty to care, due diligence
What are the 5 sub-committee and describe them
- Nominating committee - Evaluate the board size and effectiveness
- Compensation Committee - Evaluates the performance of the CEO or executive director and makes recommendations to the board regarding the CEO
- Risk assessment committee - The Committee oversees who risk is managed within the organization, sets the organization’s risk framework
- Audit Committee - Makes recommendations to the board with respect to appointing an external auditor
- Finance committee - Committee oversees the financial and budgeting functions for the organization
Provide 5 of the executive management
- CEO - Responsible for the operations of the entire company
- CIO - Responsible for overseeing the technology that is required to run the organization
- CFO - Responsible for reporting financial results, analyzing financial information, and preparing and monitoring budget
- COO - responsible for overseeing the sales, production, marketing, and H/R function
- CAE (Chief audit executive) - Responsible for the internal audit function
- Report to the audit committee of the board, administrative reporting
What are some challenges with governance
- Governance can be complex and challenging due to the size of the company and must consider all stakeholders - creditors, employees, communities
- NPO - governance focus to ensure appropriate strategic plans and resource allocation to meet organization. Balance prioritizes
What is good ethics and governance?
- Use a professional code of conduct.
- Requires professional accountant, student, and candidates internal or external, to effectively manage situations involving ethical dilemmas
- Two duties - Act with duty of care to the profession and public interest
- Public interest is a priority
Explain the Sarbanes Oxley legislation and how is it implemented
Sarbanes Oxley was legislated in 2002 to combat financial/ accounting scandals for publicly traded
Implementation - Improve accuracy and quality of audit reporting audit committee must be independent of management
CEO & CFO must verify the accuracy of F/S of internal control responsibility
