W3 Corporate Governance Flashcards
Who are Non-executive Directors
They monitor the executive directors and contribute to the overall strategy and direction of the organization
-not employees
-not involved in day to day operations
-employed on a part-time basis
Majority of them should be independent
HALF OF THE BOARD EXCLUDING CHAIR SHOULD BE INDEPENDENT NEDs
What is Corporate Governance
Corporate governance is the system by which companies are directed and controlled
What is the aim of corporate governance
To ensure companies are run ell in the interest of shareholders, employees, and other stakeholders
To try and prevent company directors from abusing their power
Why is corporate governance important
Important in large public companies where the separation between ownership and management is wider than smaller companies
What are the arguments for corporate governance legislation
Reduces the risk of misleading financial reporting
Prevents companies being dominated by CEOs/chair
More likely to achieve commercial success
Encourages investors to hold shares for the longer term.
What are the arguments against corporate governance legislation
Box ticking exercies only
Too extensive and burdensome
Costly to achieve full compliance
Competitive disadvantage compared to overseas companies
The link between good governance and good financial performance is unproven
What does the UK Corporate Governance Code say about comply or explain
All listed companies have to report annually how they applied the code. If they didn’t apply the code, they must explain why so investors know what approach was taken and why,
What are the benefits of having NEDs
Challenge the performance of the executives
help contribute to the overll strategy of the company
Determine numeration for executives
Appoint and remove directors
Provide confidence and assurance to shareholders
Provide an independent, unbiased perspective on the company
What is the role of the nomination committee
The role of a nomination committee is to decide on appointments of board of directors and senior management.
The majority of the committee should be NEDS
What is the audit committee
The audit committee takes responsibility for financial reporting and internal control matters
Able to view the company’s affairs in detached and independent way
What is the remuneration committee
They set the remuneration packages for the chair, executive directors and senior management to ensure they are paid fairly but not excessively.
How is corporate governance related to external auditors
If a company complies with corporate governance, the control environment is likely to be stronger meaning there will be greater focus on financial reporting and internal controls reducing the audit risk and risk of material misstatement.
