Chapter 5 - Governance & Boardroom Practice Flashcards Preview

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Flashcards in Chapter 5 - Governance & Boardroom Practice Deck (38)
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1
Q

What are the provisions of the UKCGC relating to nominations and appointments to the board?

A

UKCGC:

  • there should be a formal procedure for board appointments
  • appointment should be made on merit, against objective criteria
  • there should be due regard for diversity, including gender
  • the procedure should be transparent so shareholder can see what is happening.
2
Q

According to the UK Code, what should be the composition of the nominations committee in a FTSE350, and who should be its chairman?

A
  • the majority of members should be independent NEDs
  • the chairman should be either the board chairman of an independent NED
  • the board chairman should not chair where the committee is dealing with his succession
  • EDs can sit on the committee, provided they are in a minority,
3
Q

What were the three areas of improvement in corporate culture identified by the chairman of the FRC in 2016?

A

1) Connect purpose and strategy
2) Align values and incentives
3) Assess and measure

4
Q

What are the responsibilities of the nomination committee, and where are these set out?

A

ICSA Guidance Note “ToR for the Nomination Committee (2013):

  • regularly review board size and composition
  • consider succession planning
  • review leadership
  • identify and nominate candidates for the board
  • prepare job specifications
  • review the results of board evaluation
  • review time commitment for NEDs annually
5
Q

What responsibility does the chairman of the nomination committee have regarding the UKGCG?

A

Ensuring that the relevant requirements of the Code regarding board composition are complied with.

6
Q

What were the 4 key reports on board diversity?

A

2003 - Higgs Report
2003 - Tyson Report
2011 - Davies Report

7
Q

What were the 4 key reports on board diversity?

A
2003 - Higgs Report
2003 - Tyson Report
2011 - Davies Report
2016 - Hampton Alexander Review
2016 - Parker Report
8
Q

What were the findings of the Higgs report?

A

The majority of NEDs were white, middle-aged males with plc board experience.

9
Q

What were the findings of the Tyson report?

A

Many useful sources of NEDs were overlooked, including:

  • marzipan layer of executive management (which includes a large number of women)
  • the private sector
  • retired professionals, including accountants and lawyers
10
Q

What were the recommendations of the 2011 Davies Report?

A
  • there should be a greater proportion of women on boards
  • FTSE100s should aim for a minimum 25% women on boards
  • quoted companies should be required to disclose the number of women on boards
  • companies should explain in the annual report how they address diversity
11
Q

What were the findings of the Hampton-Alexander review?

A

The percentage of women on boards target should be increased to 33% on FTSE350s by 2020.

12
Q

What were the findings of the Parker report?

A

Three recommendations:

  • increase ethnic diversity of UK boards
  • develop candidates and plan for succession
  • enhance transparency and disclosure
13
Q

How does the UK Code approach board diversity?

A

Supporting principle B.2.: the search for candidates should be conducted and appointments made with consideration for the benefits of diversity, including gender.

B.2.4 - the report of the nomination committee should contain a section on board diversity policy, including gender.

14
Q

What issues should an individual consider before accepting an offer of an appointment as independent NED of a listed company?

A
  • whether the compa,ny uses unethical business practices or has a bad reputation
  • whether it is in serious financial difficulties.
  • meet with key individuals within the company
15
Q

How much time should NEDs be required to commit to the company, and should this be a contractual commitment?

A

Typical time commitments are 15-30 days per year, but this is not usually a contractual requirement.

16
Q

What key points should an NED letter of appointment contain?

A
  • details of the role
  • expected time commitment
  • term of appointment (usually 3 years)
  • remuneration
  • a requirement that any changes to independence should be raised with the chairman.
17
Q

Why is it desirable to plan for board succession?

A

To avoid disruptions to the company’s decision making processes.

18
Q

What are the requirements of the UK Code regarding re-election of directors?

A

FTSE350: “All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.”

Others: All directors should be subject to election at the AGM following their appointment, and then every 3 years.

19
Q

What is the requirement of the UK Code regarding succession?

A

The board should satisfy itself that plans are in place for orderly succession for the board and senior management.

20
Q

What should the induction of a new director consist of?

A
  • providing copies of minutes and strategy documents
  • visits to key company sites
  • product presentations
  • meetings with senior staff
  • meetings with key external advisors
  • meetings with major shareholders
21
Q

What is the difference between induction and training?

A

Induction is the starting process on appointment, involving getting to grips with the company and the role.

Training is the refreshing of skills to ensure that directors stay up to date.

22
Q

What are the requirements of the UK Code for the performance evaluation of the board, its committees and individual directors?

A

“The board should undertake a formal and rigorous annual review of its own performance, and that of its committees and individual directors”.

23
Q

What is the purpose of an annual performance evaluation of the board and its directors?

A

To ensure that the board, its committees, and its directors are functioning effectively.

24
Q

How might a chairman arrange for the evaluation of the performance of the board and directors?

A

Either by carrying reviews out personally, with advice from the CoSec, or by handing responsibility to the SID, or to an external consultancy.

25
Q

According to the UK Code, how frequently should external board evaluation of FTSE companies be facilitated?

A

At least every 3 years.

26
Q

According to the UK Code, who is responsible for the review of the chairman?

A

The NEDs, led by the SID

27
Q

According to the UK Code, how should the results of board evaluation be used?

A

The chairman should act on the results, by recognising strengths and weaknesses, and where appropriate proposing new members be appointed, or seeking resignation.

28
Q

According to the UK Code, how should the results of board evaluation be used?

A

The chairman should act on the results, by recognising strengths and weaknesses, and where appropriate proposing new members be appointed, or seeking resignation.

29
Q

What are the requirements of the MAR in respect of director share dealings for listed companies in the UK?

A

MAR requires listed companies to have rules for share dealings that are no less stringent than those in MAR:

  • maintaining an insider list
  • reporting to FCA on suscpicious transactions
  • disclosing any director dealing to the stock market
30
Q

What provisions would normally be included in a company’s rules for dealing with directors?

A
  • directors must not deal during closed periods
  • directors must seek clearance from the chairman prior to dealing
  • must not deal when privy to price-sensitive information
  • no connected persons deal without clearance
31
Q

What are three criteria of insider information?

A
  • it is specific of precise
  • it has not been made public
  • it is price sensitive
  • it relates to specific securities, or securities of a specific company
32
Q

What are three criteria of insider information?

A
  • it is specific of precise
  • it has not been made public
  • it is price sensitive
  • it relates to specific securities, or securities of a specific company
33
Q

Which law makes market manipulation a criminal offence?

A

Financial Services Act 2012

34
Q

Which law makes insider dealing and market manipulation civil offences?

A

Market Abuse Regulation 2016

35
Q

Which law makes insider dealing and market manipulation civil offences?

A

Market Abuse Regulation 2016

36
Q

What is D&0 liability insurance?

A

Directors’ and Officers’ liability insurance

37
Q

For whom is corporate governance in unlisted companies most important, and why?

A

Minority shareholders, as they cannot easily sell their shares, and so need adequate protections to safeguard their investment.

38
Q

What is the format of the IOD Corporate Governance Guidance And Principles For Unlisted Companies?

A

14 principles set across two phases:

  • Phase 1 - universal principles for all unlisted companies
  • Phase 2 - those for larger and more complex companies, including those working toward listed status