acca f1/ cat fab : corporate governance
TRANSCRIPT
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ACCOUNTANT IN BUSINESS
CHAPTER 7 : CORPORATE GOVERNANCE &
CORPORATE SOCIAL RESPONSIBILITY
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3. ROLE OF BOARD
•Taking major policy & strategic decision
•DIRECTORS
hv mix skills
Performance should be assesed regularly
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#EXTRA
Make decision on major policy and strategic decisions:
Mergers and take over.
Buy or sell assets
Investment
Bank borrowing
Money market decision
Monitor performance of CEO
Oversee strategy
Risk management and control systems
Human resource
Communication
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3.1.SCOPE OF ROLE
1. Two-tier board
Executive management board of directors
Monitored by supervisory board of directors
2. One-tier board (Unitary System)
Board of director legally charged +
responsibility to govern the company
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FUNCTION OF BOARD
Make decision
Investment
Capital projects
Bank borrowing
Loans
Other tasks
monitoring CEO
Overseeing strategy
Monitoring risk & control system
Ensure effective communication for strategic plan (internal/external)
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3.2. ROLE OF COMPANY SECRETARY
Chief Administration Officer
Appointed by companys’ director
Legally responsible for acting on company’s
behalf (Companies Act)
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WHAT SECRETARY HAVE TO
DO??
PREPARE & FILLING WITH COMPANIES HOUSE
Annual reports
Financial statement
Directors’ report
File an auditor’s report
OTHER DUTIES
Maintain statutary books & record
Safeguarding legal documents
Organising board meetings of shareholders
Take fomal minutes
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3.3.ATTRIBUTES OF DIRECTORS
Need to have relevant expertise
Mix expertise
King Report stresses = demographic
balance
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3.3.1.NOMINATION COMMITTE
.
Ensure the balance of board
Set up nomination committee
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3.4.POSSESION OF NECESSARY INFORMATION
UK’s Higgs Report
responsibility both of the chair to decide
information
King Report
important of board receiving relevant non-
financial information
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3.5.PERFORMANCE OF BOARD
Appraisal of board’s performance – important
control over it
The Higgs report – performance of board
should be assessed once a year
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3.6.INCREASED ACCOUNTABILITY &
RESPONSIBILITY
CG rules – created standard of ‘best practise’
- for all companies
DIRECTORS NOW FACE INCREASED RISK OF
1. Legal action :
More accountable for their actions &responsible to a wider range of stakeholders
2. Dismissal :
Service contracts are shorter in length
Directors must stand for re election by the shareholders regularly
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3.7.DIVISION OF RESPONSIBILITIES
.
ROLES
OFCHIEF
EXECUTIVE
CHAIR
DIFFERENT PEOPLE
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In UK – not mandatory
The Cadbury report recommended
If the posts were held by the same individual, there would be strong independent element on the board with a recognised senior member
Indipendent non-executive directors = key role in governance
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3.8.NON-EXECUTIVE DIRECTORS
No executive (managerial)
Provide balancing influence
Reduce conflicts of interest
Provide reassurance
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3.8.1.ROLE OF NED
Strategy
Challenge direction of business.
Performance
Check performance of management at corporate level.
Risk
Ensure the risk management and control system is satisfactory
Directors and managers
Determine appropriate reward, appointment or termination of sr managers and involve in succession planning
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3.8.2.ADVANTAGES 3.8.3.PROBLEMS
external experience &
knowledge
provide wider perspective
Comfort factor for third
party
Dual nature of NEDs role
lack independence
prejudice in certain
companies
difficult imposing
limited time
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3.8.4.M0ST REPORT ACKNOWLEDGES
SIGNIFICANT PRESENCE OF NED ON BOARD
CADBURY REPORT
The board should include NED of sufficient
character & number for their views to carry
significant weight
NY STOCK EXCHANGER
Rule – require listed companies have a
majority of NED
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3.8.5.INDEPENDENCE OF NED
No business,financial or other connection with company apart from fees & shareholdings
Do not take part in share option scheme
Appointment – specified term reappointment, not automatic
Independent advice