Corporate Governance
Corporate governance is the system by which companies are directed and controlled.
Good corporate governance ensures that stakeholders with a relevant interest in the company are fully
taken into account
According to the UK Corporate Governance Code the ‘purpose of corporate governance is to facilitate
effective, entrepreneurial and prudent management that can deliver the long-term success of the
company’.
Corporate governance considers the responsibilities of directors, how the board of directors should be
run and structured, the need for good internal controls and the relationship with external auditors.
It is important for companies to consider good corporate governance principles as often it is
management or those charged with governance who run the company, but the owners are the
shareholders and they are not involved in the running of the business.
For these shareholders their only opportunity to raise concerns is at the annual general meeting, which
only occurs once a year and often attendance is low.
Shareholders need to ensure that their needs are taken into account by management, and that there is
a process in place for them to be informed as to how the business is operating.
Corporate governance represents the set of policies and procedures that determine how an organisation
is directed, administered and controlled.
Although the contents of corporate governance will vary from organisation to organisation, almost all
will have the following components: Accountability, compliance, transparency and integrity
TCWG: Those “charged with governance” are defined as the persons who are “accountable for ensuring
that the entity achieves its objectives, with regard to reliability of financial reporting, effectiveness and
efficiency of operations, compliance with applicable laws, and reporting to interested parties.”
Although there is no universal rule, in most instances these persons will either be the board of directors
and/or the audit committee
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, An Exam focused summary
Can be principles based or rules based
Board of Directors
The ENTIRE board responsible for F/S, fraud prevention and detection, ICS, ethics, compliance etc.
Executive Directors: Remuneration package (Basic Salary, Benefits in kind, Performance linked
elements in short term as well as long term, Retirement benefits)
Non-Executive Directors (should be independent: No familiarity with the executive management, no
financial interest in company except a fixed fee for directors’ duties, not business relationship, not
been an employee in the recent past, can serve for maximum 9 years)
Appoint NEDs to protect SH interest. They also bring external expertise.
1. CEO and Chairman roles should be segregated (Chairman should be an NED)
2. Balance in the board: equal number of EDs and NEDs excluding the independent Chairman
3. Variety of skills, cultural and gender diversity in the board
4. There should be FOUR sub-committees of the board
a) Audit Committee
b) Remuneration Committee
c) Risk Committee
d) Nomination Committee
5. For ALL directors:
- Induction
- CPD
- Annual performance appraisal
- Re-election ever 3 years (retirement by rotation)
Regular board meetings (with agenda and minutes). No single individual should dominate
discussions.
6. The company should have a sound system of internal control.
7. There should be adequate risk management in the company.
8. There should be an internal audit department
9. Transparency in the annual report is important.
10. Institutional shareholders should intervene in the company when needed.
Page | 186
Corporate governance is the system by which companies are directed and controlled.
Good corporate governance ensures that stakeholders with a relevant interest in the company are fully
taken into account
According to the UK Corporate Governance Code the ‘purpose of corporate governance is to facilitate
effective, entrepreneurial and prudent management that can deliver the long-term success of the
company’.
Corporate governance considers the responsibilities of directors, how the board of directors should be
run and structured, the need for good internal controls and the relationship with external auditors.
It is important for companies to consider good corporate governance principles as often it is
management or those charged with governance who run the company, but the owners are the
shareholders and they are not involved in the running of the business.
For these shareholders their only opportunity to raise concerns is at the annual general meeting, which
only occurs once a year and often attendance is low.
Shareholders need to ensure that their needs are taken into account by management, and that there is
a process in place for them to be informed as to how the business is operating.
Corporate governance represents the set of policies and procedures that determine how an organisation
is directed, administered and controlled.
Although the contents of corporate governance will vary from organisation to organisation, almost all
will have the following components: Accountability, compliance, transparency and integrity
TCWG: Those “charged with governance” are defined as the persons who are “accountable for ensuring
that the entity achieves its objectives, with regard to reliability of financial reporting, effectiveness and
efficiency of operations, compliance with applicable laws, and reporting to interested parties.”
Although there is no universal rule, in most instances these persons will either be the board of directors
and/or the audit committee
Page | 185
, An Exam focused summary
Can be principles based or rules based
Board of Directors
The ENTIRE board responsible for F/S, fraud prevention and detection, ICS, ethics, compliance etc.
Executive Directors: Remuneration package (Basic Salary, Benefits in kind, Performance linked
elements in short term as well as long term, Retirement benefits)
Non-Executive Directors (should be independent: No familiarity with the executive management, no
financial interest in company except a fixed fee for directors’ duties, not business relationship, not
been an employee in the recent past, can serve for maximum 9 years)
Appoint NEDs to protect SH interest. They also bring external expertise.
1. CEO and Chairman roles should be segregated (Chairman should be an NED)
2. Balance in the board: equal number of EDs and NEDs excluding the independent Chairman
3. Variety of skills, cultural and gender diversity in the board
4. There should be FOUR sub-committees of the board
a) Audit Committee
b) Remuneration Committee
c) Risk Committee
d) Nomination Committee
5. For ALL directors:
- Induction
- CPD
- Annual performance appraisal
- Re-election ever 3 years (retirement by rotation)
Regular board meetings (with agenda and minutes). No single individual should dominate
discussions.
6. The company should have a sound system of internal control.
7. There should be adequate risk management in the company.
8. There should be an internal audit department
9. Transparency in the annual report is important.
10. Institutional shareholders should intervene in the company when needed.
Page | 186
