Topic 11 - Corporate Governance

Question 1

Corporate Governance

Answer 1

System by which companies are directed and controlled through boards of directors which establish corporate aims/objectives. Boards roles is to provide leadership within a framework of controls that enable risk to be managed.

Question 2

Aims

Answer 2

Maximise shareholder wealth - Stakeholder model (look after everybody)

-Transparency
- Accountability
- Efficiency
- Responsibility to Risk
-Less likely to be mismanaged.

Question 3

Segregation of Duties / Division of Responsibility

Answer 3

Chairman (NED) - CEO (ED) = Cannot be the same person.

Look into controls where segregation of duties will reduce risk, i.e. payroll and personal data admin.

Question 4

Committees

Answer 4

Risk - Board should manage risks and oversee internal controls
Remuneration - promote long term success, policy for setting, transparent, directors not involved, Independent, workforce pay should be considered when setting exec pay.
Nomination - Board appoints by committee nomination (majority), based on merit, skills and experience, annual re-election, chair must be replaced after 9years.
Audit- 3 independent NEDs with 1 with financial expertise, public confidence, assisting directors, liaise with external auditors, monitor FS, review FS, support finance director.

Question 5

Board/Leadership/Composition

Answer 5

Effective Board - Establish a purpose
Balance - Equal number of NED and ED’s
Division of responsibility
Framework of effective controls

NED = Independent and hold ED to account - part time basis

ED = Appropriate balance of skills. Running of day to day

Chari Role = Leads the board, enables flow of meeting, communication, independent, no more than 9 years

Question 6

INSIDE A CRAB

Answer 6

I = Internal controls set and monitored by the board
N = Nomination Committee is independent and rigorous
S = Shareholders = Regular communication
I = Internal Audit = Aid directors
D = Disclosure to comply or disclose do not.

A = Accountability - good reporting

C = Chairman and CEO are two separate roles
R = Remuneration set by committee, fair
A = Audit Committee NED
B = Balanced board, equal NED to ED