7. Governance, corporate responsibility, and ethics

Question 1

Managers of a business act as ____ for the owners of the business

Why might this be problematic?

Answer 1

Agents

Since managers will make decisions to help themselves, not the owners

Question 2

A general lack of control and communication with the board is a sign of what?

Answer 2

Poor corporate governance

Question 3

Corporate governance can be seen from what four perspectives?

Answer 3

Shareholders
Public
Stakeholders
Stewardship (management must make decisions that serve only interests of the company)

Question 4

Give an example of good practice in corporate governance

Answer 4

1. Reduction of risk
2. Good supervision and management
3. Pursuit of an ethical strategy
4. Applying the spirit of the law
5. Accountability

Question 5

Non-executive directors are expected to be ______ of the executives

Answer 5

Independent

Question 6

What is the difference between a bank based system and a market based system?

Answer 6

Bank based: households prefer more of their financial assets to cash and equivalents due to low risk tolerance

Market based: households prefer more of their financial assets to be in equity due to high risk tolerance

Question 7

What is the UK Corporate Governance code?

What are its five main principles for companies?

Answer 7

A code of practice embodying a shareholder led approach to corporate governance

1. Leadership
2. Board effectiveness
3. Accountability
4. Remuneration
5. Investor relationships

Question 8

For premium listing companies, all members of the board should be re-elected every _____

Answer 8

Year

Question 9

What is the audit committee responsible for?

What is the remuneration committee responsible for?

What is the nomination committee responsible for?

Answer 9

Reviewing financial statements

Overall policy on remuneration and recommending remuneration packages for executive directors

For recommending appointments of executive and non-executive directors to the board

Question 10

What is the difference between a unitary board of directors and a dual/supervisory board of directors?

Answer 10

Unitary: responsible for both management of business and reporting to shareholders

Dual: has a separate management board and an independent supervisory board

Question 11

What are the Nolan principles (5)

Answer 11

1. Integrity
2. Objectivity
3. Accountability
4. Openness
5. Honesty

Question 12

What three goals were established at the 17 Global Goals formSustainable Development UN meeting?

Answer 12

End poverty
Fight inequality
Stop climate change