Corporate Governance Flashcards
(9 cards)
What is uk corporate governance
A set of best practice principles, not a rigid set of rules or legal requirement and is not mandatory.
What is comply or explain?
Companies are required to report on whether they have complied with the corporate governance or explain the reasons why they have not
What 5 areas does the FRC code cover ?
1 - board leadership and company purpose
2- division of responsibilities
3- composition, succession and evaluation
4- audit, risk and internal control
5- remuneration
1 board leadership and company purpose
A- board should ensure necessary resources, policies and practices are in place for the company to meet its objectives
B- board should establish the company’s purpose, all directors must act with integrity
C- governance reporting should focus on board decisions
2 Division of responsibilities
Principle F - chair leads the board and is responsible for its overall effectiveness and should facilitate the effective contribution of all non execs
Provision 9 - the chair should be independent of the company on appointment. The roles of the chair and ceo should not be the same person. CEO shouldn’t go on to be the chair, if so they should consult major shareholders
Provision 11- atleast half the board excluding the chair should be non executives who are independent
Provision 13 - non execs have a role in appointing and removing executive directors
Issues of NED independence
Has been an employee within the last 5 years
Has or has had a material business relationship within the last three years
Receives additional remuneration from the company other than NED fee
Has close family ties
Holds cross directorship
Represents a significant shareholder
Has served on the board for more than 9 years from their date of appointment
Composition, succession and evaluation
Provision 17 - board should establish a nomination committee. The chair or an independent non executives should chair the committee
Provision 18 - all directors should be subject to annual reelection to the board
Provision 19 - the chair should not remain in post beyond nine years
Provision 21- formal rigorous annual evaluation of the board, companies in ftse 350 should be every 3 years
Audit risk and internal control
Provision 24 - should establish an audit committee of independent non executives with a minimum membership of 3 in the case of smaller companies two, the chair of the board should not be a member. Atleast one member should have recent and relevant financial experience
Provision 25 - the role is to monitor the integrity of the financial statements and any formal announcements. Providing advice
Provision 28- should carry out a robust assessment of the company’s emerging risks and this should be confirmed in the annual report
5 Rumuneration
Provision 32- establish a numeration committee with independent non executives with a minimum membership of 3 (2 for smaller companies two companies)
Provision 33 - they should have delegated the rumination for execs
