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Corporate Governance Flashcards

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1
Q

What is the UK corporate governance code?

A

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

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2
Q

Who does the UK corporate governance code apply to?

A

All premium listed companies

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3
Q

Is the UK corporate governance code
a legal requirement?

A

No

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4
Q

What happens if companies don’t comply with the UK corporate governance code?

A

Must explain on their annual report

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5
Q

5 Sections of UK Corporate Governance Code

A

{DRAB C}

  1. Division of responsibilities
  2. Remuneration
  3. Audit, risk and internal control
  4. Board leadership + company purpose
  5. Composition, succession and evaluation
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6
Q

Board leadership and company purpose: What are the responsibilities of the board?

A

{C BEER}

Creating shareholder wealth

Benefiting community
Effective
Entrepreneurial
Responsible for: company’s long term success

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7
Q

UKCGC: Board responsibilities

A

Considering success

Stakeholder engagement

Set purpose values and strategy
Align culture to them
Directors should set example

Meet and measure performance
Risk assessment and mitigation
Internal controls

Support values with policies + procedures
Ability for workforce to communicate concerns

Meet regularly
With formal agenda

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8
Q

UKCGC: Annual statement should include

A

How board operates

Which type of decisions taken by board and which are delegated to management

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9
Q

Board attitude to shareholders

A
  1. Satisfactory dialogue
  2. Equal access to info
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10
Q

Types of board members

A
  1. Chair
  2. Senior independent director
  3. Non-executive director
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11
Q

Chair responsibilities

A

Discuss governance and strategy with major SHAREHOLDERS

Communicate to BOARD

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12
Q

Senior independent director responsibilities

A

Attend sufficient meeting w. range of major shareholders
Develop balanced understanding of issues and concerns

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13
Q

Non-executive directors responsibilities

A

Opportunity to attend scheduled major shareholder meetings
Attend when requested by major shareholders

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14
Q

What % of shareholders disagreement against board recommendation vote = effective action must planned and communicated to consult with shareholders over the issue?

A

20%

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15
Q

Which members of the board does the annual report have to identify?

A
  1. Chair
  2. Deputy chair (if applicable)
  3. Chief executive
  4. Senior independent (non-executive) director
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16
Q

Who is below the chief executive?

A

Executive directors

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17
Q

Who is below the chair?

A

Non-executive directors (NEDs)

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18
Q

What are executive directors responsible for?

A

Managing day to day business

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19
Q

What are NEDs responsible for?

A

Constructively challenge and help develop proposed strategies

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20
Q

Requirements of new chair

A
  1. Independent
  2. Different to chief executive
    Can’t become later and vice versa
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21
Q

Duties of the chair

A

{PEES}

Promoting openness and debate

Ensuring directors recover accurate timely and clear info

Effective shareholder communication

Setting the board’s agenda

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22
Q

NED responsibilities

A

Review financial controls and risk management

Appoint/remove/set remuneration of executive directors

Monitoring performance
Monitor reporting of performance

Meet chair without executive directors

Meet without chair present at least annually to appraise chair’s performance

Submit chair concerns to board on resignation

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23
Q

Appointments to the board requirements

A
  1. Formal, rigorous, transparent appointment process
  2. Objective, on merit, diversity considered
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24
Q

Who should be on nominations committee?

A

Over 50% members should be independent non-executive directors

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25
What should NEDs be appointed for?
Specified terms Subject to reelection
26
After how long service should NEDs receive a rigorous review?
6y
27
Who can chair the appointments committee?
The chair Or a NED The chair can’t chair the committee for their successor
28
Should the chair and members of the nomination committee be reported in the annual report?
Yes
29
How is director’s performance measured?
Annual evaluation Formal and rigorous Including committees and individual directors
30
How should the chair act on the annual director evaluation?
Proposing appointments/resignations
31
How is each director evaluated in the annual review?
Effectiveness of contribution Time commitment
32
What should the chair ensure all directors do?
Continually update their skills
33
What do all directors have to commit to the company?
Sufficient time to discharge their responsibilities
34
What restrictions do executive directors have?
Can’t become chair of premium listed company Can’t have more than one NED role in a premium listed company
35
Can a chair chair more than one premium listed company?
Yes
36
What do the chair and NEDs have to disclose to the board before appointment and inform if it significantly changes?
Other significant commitments
37
Who’s significant commitments must also be disclosed in the annual report?
The chair’s
38
Does the board’s responsibility to present fair, understandable and balanced documents apply just to financial statements?
No It also covers all price sensitive information e.g. interim reports, reports to regulators
39
What should the directors do in the annual report?
1. Confirm responsibility for preparing annual report and accounts 2. Confirm whether true and fair view of company 3. Confirm going concern Report any material uncertainties about it 4. Confirm they have assessed principal risks robustly
40
Should the board maintain sound risk management and internal control systems?
Yes
41
How often should the board review the effectiveness of internal control systems?
At least annualy
42
Purpose of the audit committee
Establishing formal and transparent arrangements for maintaining an appropriate relationship with the C’s auditors
43
Who should be on the audit committee?
At least three NEDs if a premium listed company At least two if a smaller listed company At least one member must have recent and relevant financial experience In smaller companies the board chair may be a member as well as NEDs
44
Who must chair the audit committee?
A NED Can’t be the chair
45
What should the annual report disclose in terms of members of the audit committee?
Chair and members
46
What do the responsibilities of the audit committee cover?
1. Financial statements 2. Financial controls 3. The external auditor 4. Whistleblowing
47
Audit committee: Financial statements responsibilities
Reviewing integrity Formal announcements of performance Reporting of fairness, balance and understandability when requested
48
Audit committee: Financial controls responsibilities
Reviewing internal controls Reviewing effectiveness of internal audit function or considering starting one
49
Audit committee: External auditor responsibilities
Recommending appointment, re-appointment, removal Approve remuneration Monitor independence and provision of non-audit services
50
Audit committee: Whistleblowing responsibilities
Reviewing process Incl investigating and following up staff concerns
51
Directors remuneration requirements
Enough to attract retain and motivate Not more than necessary
52
Who should set executive director’s remuneration?
Remuneration committee
53
Who should set executive directors’ remuneration?
The board
54
How should executive directors’ remuneration be set?
To promote long term success of company Performance-related elements should be transparent and rigorously applied
55
How should NED remuneration be set?
Reflecting time commitments and responsibilities of role Should not include performance related elements or share options
56
When is executive director remuneration shareholder approval needed?
Invited specifically to approve all new/changed long-term incentive schemes
57
When is NED remuneration shareholder approval needed?
If share options granted (approval needed in advance)
58
NED share options rule
Must be held until at least 1y after leaves board
59
Can a director ever be involved in setting their own remuneration?
No
60
Remuneration committee: For who?
1. Chair 2. Executive directors 3. Senior management
61
Who should be on the remuneration committee?
At least 3 NEDS if premium LC At least 2 NEDS if smaller
62
Can the chair be a member of the remuneration committee?
Yes
63
What counts as a smaller listed company?
Sub FTSE 350
64
Who must chair the remuneration committee?
A NED Can’t be the chair
65
Which remuneration committee members must be reported?
Chair and members
66
Who is ultimately responsible for corporate governance?
The board of directors
67
Which 3 parties provide assistance to the board in relation to corporate governance?
1. Institutional shareholders 2. External auditors 3. Internal auditors
68
Institutional shareholders’ responsibility to corporate governance
Engage with companies to: 1. Provide long term returns 2. Exercise governance responsibilities efficiently
69
External auditors’ governance responsibilities
Report on (listed) C’s compliance with: 1. UK Corporate Governance Code 2. Directors’ remuneration report
70
Internal auditors’ governance responsibilities
Reviewing internal control and risk assessment systems
71
Purpose of an external audit
Confirm true and fair view of financial performance and position

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