Chapter 2 - Governance Structures Flashcards
(12 cards)
What are the three key governance theories linked to board structure?
Agency theory (monitoring managers), Stewardship theory (trust in executives), Stakeholder theory (broader responsibilities beyond shareholders).
What does agency theory assume about executives?
That they may act in their own interests and need monitoring by the Board to protect shareholders.
How does stewardship theory view executive motivation?
Assumes executives are naturally motivated by organisational success and are trustworthy.
What does stakeholder theory emphasise?
That the Board is accountable not only to shareholders, but also to other stakeholders like employees, communities, and regulators.
What structural elements influence board design?
Legal form, sector, organisational complexity, Chair independence, director diversity, and task responsibility.
Why must the Chair not be the former CEO?
To maintain independence and allow space for challenge and objectivity in oversight.
What key characteristics should directors bring?
Skills mix, diversity, independence, and the ability to constructively challenge.
What are the core board tasks?
Oversight, strategy, performance, risk, values, and succession planning.
Does structure alone make a Board effective?
No — structure is essential, but behaviour, process, and culture are equally critical to performance.
What does the UK Corporate Governance Code offer?
A principles-based framework for structure and behaviour, but Boards must also exercise judgement.
What is the key message of Chapter 2?
Structure is the foundation of governance, but effectiveness depends on behaviour, process, and values.
What memory aid summarises Chapter 2?
S-T-R-U-C-T-U-R-E: Set-up, Theories, Remuneration, Understanding roles, Composition, Tasks, Ultimately, Regulation, Effectiveness.
