Flashcards in 2 - Corporate Governance Deck (16)
What is corporate governance?
System by which companies are directed and controlled
Corporate governance is in place to achieve?
Long term strategic goals
Care for interests of employees
Environment and local community
Maintain relations with business partners
How many principles and provisions does the UK Corporate Governance code have?
Apply to listed companies
What are the sections of the UK Corporate Governance code?
Board leadership and company purpose
Division of responsibilities
Composition, succession and evaluation
Audit, risk and internal control
Elements of board leadership and company purpose?
Promote long term success
Engage with share and stakeholders
Elements of division of responsibilities?
Chair and CEO can’t be same
Should be 50 50 EDs and NEDs
Chair should provide objective challenge, advice and scrutiny
NEDs should have sufficient time and hold Management to account
A NED is considered independent if
Not employed by company in last 5 years
No material business relationship in last 3 years
No close family ties
No cross directorship (ED in one NED in other and vice versa with someone else)
Not a significant shareholder
No more than 9 years continuous service
Composition do audit committee?
At least 3 NEDs
Composition of remuneration committee?
At least 3 NEDs
Composition of Nomination committee?
Elements of composition succession and evaluation?
Directors subject to annual re-election
Chair Shouldn’t remain for more than 9 years
Appointed using open adverts - NEDs and chair
Annual formal appraisals
Elements of audit risk and internal control?
Audit committee at least 3 NEDs, one member with financial experience and chair should be be part
Monitor effectiveness of internal audit and relationship with external audit
Disclose in AR
Guidance on Audit Committee?
At least 3 meetings a year
1 with financial experience
3 NEDs, two if smaller
Appointed by board on recommendation of nomination committee
Time to fulfil duties
FRC guidance on risk management and internal control
Board has responsibility for overall approach
Assumption trade for foreseeable future - going concern > 1 year
Material uncertainties, consider:
Likelihood of uncertain future events
Realistic availability and effectiveness directors actions
Whether future events are unusual
Elements of remuneration?
Remuneration committee of 3 NEDs, 2 smaller companies
Chaired by someone with 12 months experience of a rem committee
No share or performance pay
Remuneration schemes should promote long term shareholding’s - 5 YEARS
Pension contributions on basic salary
Notice shouldn’t be more than 1 year