Chapter 3
Corporate governance
What is corporate governance?
It is a system through which entities are directed and
controlled.
The system:
. C.E.O and chairman should always be different
. Equal number of executive and non executive directors
. Nomination committee
. Remuneration committee
. Audit committee (consists of only N.E.D’s )
. N.E.D,s should not have previously been executive directors.
Nomination committee: A subcommittee of the board which is assigned the task to
nominate directors.
Remuneration committee: A subcommittee of the board which is assigned the task to set the
directors remunerations.
Risk management committee: A subcommittee of the board which is assigned the task to
monitor and implement controls.
AUDIT COMMITTEE:
. Ensures the honesty of financial statements.
. Monitors company’s financial controls unless separate risk management committee is
present.
. Monitors and reviews internal audit function of the company.
. Provides recommendation to board regarding appointment and removal of external
auditors as well as setting their remunerations.
, . Carries out investigation in case of fraud and error.
. Acts as a bridge between external auditors and management. Jumper Air
Weaknesses Recommendations
Mr Shephard is the C.E.O and the chairman Mr Shephard should remain as C.E.O but
of the company. There should be clear resign from the position of chairman and an
division of responsibility of running the independent N.E.D should be appointed in
board so that no one individual enjoys too his place as chairman instead.
much power as it can lead to an abuse of
power.
The board comprises of 5 E.D’s and 2 At least half of the board members must be
N.E.D’s. It is highly important that the board N.E.D’s, so the company should consider
makes decisions that are in the best interest hiring 3 more N.E.D’s as soon as possible.
of the company and that no one group
enjoys too much power and dominates the
decision-making process.
Board salaries are set and paid by Mr Setting of salaries should be done via a
Shephard himself, allowing him to do so will remuneration committee. E.D’s should be
result in Mr Shepherd setting higher based as per their performance and N.E.D’s
salaries for himself and the people close to should be paid as per their skill and time
him, resulting in losses for the company. given to the company.
Mr shepherd is appointing directors himself. Hiring of directors should be done via a
Allowing him to make appointments nomination committee which will ensure
himself will not bring the desired level of that independent people are appointed as
independence. He will appoint those directors of the company.
people who are known to him and will stay
loyal to him and will not go against him in
the situation of a vote.
Jumper does not have an internal audit Company should immediately setup an
department. Lack of an internal audit internal audit department, however costs
department will result in issues not being of setting this up should be compared with
highlighted on a timely basis resulting in benefits as well.
problems later on.
.
Corporate governance
What is corporate governance?
It is a system through which entities are directed and
controlled.
The system:
. C.E.O and chairman should always be different
. Equal number of executive and non executive directors
. Nomination committee
. Remuneration committee
. Audit committee (consists of only N.E.D’s )
. N.E.D,s should not have previously been executive directors.
Nomination committee: A subcommittee of the board which is assigned the task to
nominate directors.
Remuneration committee: A subcommittee of the board which is assigned the task to set the
directors remunerations.
Risk management committee: A subcommittee of the board which is assigned the task to
monitor and implement controls.
AUDIT COMMITTEE:
. Ensures the honesty of financial statements.
. Monitors company’s financial controls unless separate risk management committee is
present.
. Monitors and reviews internal audit function of the company.
. Provides recommendation to board regarding appointment and removal of external
auditors as well as setting their remunerations.
, . Carries out investigation in case of fraud and error.
. Acts as a bridge between external auditors and management. Jumper Air
Weaknesses Recommendations
Mr Shephard is the C.E.O and the chairman Mr Shephard should remain as C.E.O but
of the company. There should be clear resign from the position of chairman and an
division of responsibility of running the independent N.E.D should be appointed in
board so that no one individual enjoys too his place as chairman instead.
much power as it can lead to an abuse of
power.
The board comprises of 5 E.D’s and 2 At least half of the board members must be
N.E.D’s. It is highly important that the board N.E.D’s, so the company should consider
makes decisions that are in the best interest hiring 3 more N.E.D’s as soon as possible.
of the company and that no one group
enjoys too much power and dominates the
decision-making process.
Board salaries are set and paid by Mr Setting of salaries should be done via a
Shephard himself, allowing him to do so will remuneration committee. E.D’s should be
result in Mr Shepherd setting higher based as per their performance and N.E.D’s
salaries for himself and the people close to should be paid as per their skill and time
him, resulting in losses for the company. given to the company.
Mr shepherd is appointing directors himself. Hiring of directors should be done via a
Allowing him to make appointments nomination committee which will ensure
himself will not bring the desired level of that independent people are appointed as
independence. He will appoint those directors of the company.
people who are known to him and will stay
loyal to him and will not go against him in
the situation of a vote.
Jumper does not have an internal audit Company should immediately setup an
department. Lack of an internal audit internal audit department, however costs
department will result in issues not being of setting this up should be compared with
highlighted on a timely basis resulting in benefits as well.
problems later on.
.
