7.2 Corporate governance and strategy

Question 1

Any structure requiring the use and control of the _______ of a third party will require governance.

Answer 1

assets

Question 2

State S172 CA 2006

Answer 2

A director of a company must act in the way he considers, in good faith, would be most most likely to promote the success of the company for the benefit of its members as a whole.

Question 3

The regulation and oversight of all matters pertaining to governance within the UK currently sits with the __________ ____________ __________

Answer 3

Financial Reporting Council

Question 4

In addition to the UK Corporate Governance Code, the FRC continually develop other publications including their 2018 Guidance on B________ E__________

Answer 4

Board Effectiveness

Question 5

The UK Corporate Governance Code operates on a ______ or _____ basis

Answer 5

comply or explain

Question 6

Are AIM companies required to follow the UK Corporate Governance Code?

Answer 6

They must either follow the code or state which code they are following.

Question 7

UK Corporate Governance Code Principle __: The Board should establish the company’s purpose, values and strategy and satisfy itself that these and its culture are aligned. All __________ must act with integrity, lead by example and promote the desired culture.

Answer 7

Princple B

directors

Question 8

UK Corporate Governance Code Provision ___: The Board should assess the basis on which the company generates and preserves v_______ over the long-term. It should describe in the annual report how opportunities and risks to the future success of the business have been considered and addressed, the s____________ of the business model and how its governance contributes to the delivery of its strategy.

Answer 8

Provision 1
Value
Sustainability

Question 9

There is an overlap between governance and operational management.

Governance involves responsibility and accountability for the satisfaction of s_________ expectations

Operational management involves responsibility ad accountability for delivery of p_______.

Answer 9

stakeholder

process

Question 10

Wearden states that the two main “circles” of corporate culture are “governance” and “operational management”. Within which of these do Non-Executive Directors operate?

Answer 10

The governance circle.

Question 11

Which “circle” of culture tends to have a longer-term view - 1) Operational Management or 2) Governance?

Answer 11

Governance

Question 12

In the principal agent problem:

the _______ establishes the objectives and strategic direction and parameters

the _____ works to deliver the objectives within the established strategic parameters

Answer 12

principal

agent

Question 13

It is essential that the appropriateness of any governance structure is reviewed and _______ frequently to recognise the changing nature of the drivers of today and the future.

Answer 13

updated

Question 14

A core focus of effective governance is the alignment of strategy with r____ and control as stated in Principle O of the UK Code.

Answer 14

risk

Question 15

According to Weardon, corporate governance involves the triangulation of which three factors?

Answer 15

Strategy
Control
Risk

Question 16

What are some benefits of the shareholder model of governance?

Answer 16

• higher rate of return for investors
• reduces risk for investors
• encourages entrepreneurship
• independence for management (because of the agency relationship)

Question 17

What are some disadvantages of the shareholder model of governance?

Answer 17

• difficult for investors to monitor the management
• risk of short termism for quick returns
• senior management greed

Question 18

What are some advantages of the stakeholder model of governance?

Answer 18

• closer monitoring of management for investors
• longer-term decision horizons
• fewer high risk decisions (as there is less focus on short term returns)

Question 19

What are some disadvantages of the stakeholder model of governance?

Answer 19

• potential interference by investors in management
• slow decision making due to investor input
• reduced independence of managers
• fewer financing opportunities

Question 20

In what was does the current system of UK company law prevent worker participation in the Board room?

Answer 20

Each director is required by CA2006 to bring professional, independent judgement to the Board table (rather than representing any particular stakeholder).

Question 21

The governance structure of many Japanese companies involves a horizontal “keiretsu”, whereby individual companies own small portions of one another. What is the purpose of this model?

Answer 21

To enhance the input of a wide range of stakeholder, thereby lessening the control of managers.

Question 22

UK Companies typically have a “monistic” governance structure. Give the names of two alternative structures.

Answer 22

Dualistic

Pluralistic