ACCA F1/ CAT FAB : CORPORATE GOVERNANCE

ACCOUNTANT IN BUSINESS

CHAPTER 7 : CORPORATE GOVERNANCE &

CORPORATE SOCIAL RESPONSIBILITY

3. ROLE OF BOARD

•Taking major policy & strategic decision

•DIRECTORS

hv mix skills

Performance should be assesed regularly

#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

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

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)

3.2. ROLE OF COMPANY SECRETARY

Chief Administration Officer

Appointed by companys’ director

Legally responsible for acting on company’s

behalf (Companies Act)

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

3.3.ATTRIBUTES OF DIRECTORS

Need to have relevant expertise

Mix expertise

King Report stresses = demographic

balance

3.3.1.NOMINATION COMMITTE

.

Ensure the balance of board

Set up nomination committee

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

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

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

3.7.DIVISION OF RESPONSIBILITIES

.

ROLES

OFCHIEF

EXECUTIVE

CHAIR

DIFFERENT PEOPLE

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

3.8.NON-EXECUTIVE DIRECTORS

No executive (managerial)

Provide balancing influence

Reduce conflicts of interest

Provide reassurance

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

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

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

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