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Governance And Ethics Flashcards

(50 cards)

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1
Q

What is governance?

A

A system by which organisations are directed and controlled

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2
Q

Effects of poor governance

A
  1. Falling share price
  2. Corporate failure
  3. Criticism of accountants or auditors
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3
Q

The agency problem

A

When managers pursue their own interests not those of the shareholders

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4
Q

How should good corporate governance reduce the agency problem?

A

Aligning management objectives with shareholder objectives

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5
Q

Corporate governance

A

Relationships between management, board, shareholders, other stakeholders which structures the setting, attaining and monitoring objectives

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6
Q

What do corporate governance objectives depend on?

A

Perspective

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7
Q

Social responsibility

A

How far it exceeds the minimum obligation owed to stakeholders and society

Esp stakeholders unprotected by contractual/business relationships

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8
Q

Natural capital

A

The world’s natural assets, used in order to live

Geology, soil, air, wager

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9
Q

Sustainability

A

Ability to meet the needs of the present without compromising the ability of future generations to meet their own needs

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10
Q

Business sustainability

A

How far a business goes to operate in a sustainable

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11
Q

What is the achievement of sustainability part of?

A

Corporate responsibility

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12
Q

Key goals for businesses in UN Global Goals for Sustainable Development

A
  1. Decent work and economic growth
  2. Industry, innovation, infrastructure
  3. Responsible consumption and production
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13
Q

2 functions of a financial system

A
  1. Transmission of money
  2. Facility of lending and borrowing money
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14
Q

3 elements of a financial system

A
  1. Intermediaries
    (Banks, pension funds, unit trusts etc.)
  2. Securities
    (Shares and bonds)
  3. Markets
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15
Q

What thing that a country has that affects the style of corporate governance that develops?

A

Its financial system

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16
Q

Intermediaries function

A

To reduce problem of asymmetric information by giving ADVICE to poorly informed customers/investors

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17
Q

The 2 types of financial system

A
  1. Bank based
  2. Market based
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18
Q

Bank-based financial system

A

Bank lending most important
(After retained earnings)

Banks doing the lending are highly integrated: Holding equity, representing board

Banks concentrated and integrated (proving both banking and insurance etc.)

Stock markets are volatile and speculative because companies have high gearing

More gov regulation of markets

Households have little risk (money mainly held in deposit)

Securities investment done via intermediaries, so institutional shareholders are influential

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19
Q

Market-based financial system

A

Markets more important than banks for long term finance

Banks have less close relationships with businesses they lend to

Banks less integrated

Unregulated markets comparatively

Households bare more risk so likely have more equity investments

Indirect investment via intermediaries e.g. pension funds so institutional investors have high influence

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20
Q

Hofstede: power distance

A

Acceptance of power differential, rank and status

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21
Q

Hofstede’s Power distance on codes of governance

Study These Flashcards
A

Accept concentration of power so less separation of roles
E.g. chair and CEO, NEDs

22
Q

Hofstede: Uncertainty avoidance

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A

Comfort with uncertainty

23
Q

Hofstede’s uncertainty avoidance on codes of governance

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A

Focus on Control and risk management

24
Q

Hofstede: individualism and collectivism

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A

Prioritising individual or team performance

25
Hofstede’s individualism on governance structures
More diversity because more accepting of different viewpoints
26
Hofstede: Mascilinity
Fact based Aggressive Hard decision making style
27
Hofstede: Femininity
Consultative Intuitive
28
Hofstede’s masculinity on governance structures
Stereotypical male CEO Traditional gender roles
29
Hofstede’s femininity on gender roles
Work life balance Diversity
30
Hofstede: Short term orientation on governance
Bonus culture Rewards based on annual results
31
Hofstede: Long term orientation on governance
Share options exercisable after a number of years
32
Hofstede’s indulgence and restraint on governance
Affecting corporate hospitality and spending
33
Governance structure
Legal/regulatory methods to ensure effective corporate governance
34
Principles based approach to governance structures principles
Promoting transparent and efficient financial markets Equitable treatment of all shareholders Relationships with institutional investors, stock markets and intermediaries Rights of stakeholders in corporate governance Accurate and timely and transparent disclosure if financial performance Responsibilities of board Accountability of shareholders
35
Shareholder-led approach to governance structures countries
UK and US
36
Two main types of governance structures
1. Principles based 2. Shareholder led
37
The two types of board structure
1. Unitary board 2. Dual board
38
Unitary board (e.g. UK) responsibilities
Management Reporting to shareholders
39
Dual Board (e.g. Germany) Split into:
1. Management board 2. Supervisory board
40
Supervisory board
Separate and independent board elected by shareholders and employees
41
Supervisory board functions
1. Oversee management board 2. Approve/reject FS and dividends 3. Appoint/remove management board directors 4. Convene shareholder meetings
42
Do private companies need to comply with UK corporate governance code?
Never
43
Companies (Misc Reporting) Regulations (2018) requires some companies to include corporate governance arrangements in annual reports if meet one of three:
1. <2000 worldwide employees 2. <200m global turnover 3. <2bn total assets
44
What are the Wates Principles?
Voluntary code to help large private companies meet C(MR)R regulations
45
The 6 Wates principles
{PB DORS} 1. PURPOSE and leadership: Develops purpose and ensures values strategy and culture align with it 2. BOARD BALANCED and includes effective chair 3. DIRECTORS’ RESPONSIBILITIES include robust internal control systems and effective decision making 4. OPPORTUNITIES and risks identified and managed to create sustainable success 5. REMUNERATION aligned to long term sustainable success 6. Meaningful STAKEHOLDER ENGAGEMENT
46
Basis for applying Wates Principles
Apply or explain basis
47
The 5 Nolan principles
{OO HAI} Openness Objectivity Honesty Accountability Integrity
48
The 5 institute of business ethics
1. Respect 2. Responsibility 3. Transparency 4. Trust 5. Fairness
49
Statutory ethical requirements for all companies (leaders have strong influence on ethical culture)
1. Equality for all 2. No discrimination on any grounds 3. Freedom of information
50
FRC ‘corporate culture and the role of boards’
Must demonstrate leadership By embodying desired culture and acting where leaders don’t deliver Must recognise value of culture And that healthy corporate culture can be a valuable asset and source of competitive advantage Directors must be open and accountable How business is conducted and stakeholders engaged with Leaders should embed and integrate values of the company To inform behaviours expected of employees and suppliers Should assess measure and engage desired outcomes using indicators and measures Should align values and incentives Board should exercise stewardship Including Engagement about culture Should encourage better reporting

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