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Flashcards in 2 - Corporate Governance Deck (16)
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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?

18 principles
41 provisions

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
All NEDs


Composition of remuneration committee?

At least 3 NEDs


Composition of Nomination committee?

Majority NEDs


Elements of composition succession and evaluation?

Nomination committee
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
Enough time
Remuneration schemes should promote long term shareholding’s - 5 YEARS
Pension contributions on basic salary
Notice shouldn’t be more than 1 year


SOX 2002 impacts companies registered with US Securities and Exchange Commission

SEC monitors the PCOAB (public company accounting oversight board, responsible for?

- Registering Public accounting firms
- standards
- inspections, disciplinary
- compliance with SOX