Corporate Governance

1
Corporate Governance

• K Dyson
• School of Business

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Understanding of

• Role of corporate governance
• Accountability and corporate governance
• The role of the market
• The UK governance model
• Stakeholder theory

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Introduction

• New discipline
• How companies are structured or governed
• Corporate scandals Maxell
• The balance of power between shareholders and
  management

4
Perspective

• Governance systems differ worldwide
• For cultural, social and economic reasons
• Competitive advantage through good corporate
  governance

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Corporate Governance in the UK

• Anglo-American
• Shareholders provide capital
• Day-to-day management with Directors
• Divorce of ownership from control
• Agency conflicts
• Provide annual reports, but little else

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Best Practise

• Information which is relevant
• Information which is accurate
• Information which is useful for decision making
• Current information adequate?

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Cadbury Report

• Stock Exchange and Accounting bodies
• Examined governance with respect to
• Responsibilities of executive and non-executive
  directors
• Frequency and clarity of info
• The case for audit committees
• Responsibility of the auditor
• Link between shareholders, board and auditors

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Recommendations of the Cadbury Report

• Composition of board
• Chairman and CEO position split
• Executive directors 3 years max pay committee
• Non-Executive directors role improved
• Establish company audit committee

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Greenbury Code

• CBI inspired - pay
• Recommendations
• Remuneration committee
• Disclosure of remuneration of Directors
• A remuneration policy
• Contracts and compensation for termination
• 1 year or less notice

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Hampel Report

• Extend Cadbury Report
• Recommended
• Chairman/CEO position split
• One year Director contracts
• Remuneration Committee Non-executive Directors
• Non-Executive Director to liase with Shareholders
• Director training
• Cadbury Hampel Combined Code of Practise

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Turnbull

• ICAEW inspired
• How the Combined code of practise should be
  implemented
• Internal control and risk management
• Adopt a risk based approach
• Manage risk to achieve objectives
• Effective financial controls and maintain proper
  accounting records

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Combined Code

• Annual statement must include
• Appliance Statement narrative of how the
  Combined code has been applied
• Compliance Statement A statement of whether
  the code has been fully complied with

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Stakeholder Theory

• Recognition that a company corporate citizen
• Rights and responsibilities
• Challenge business to accept responsibility, to
• Shareholders
• Employees
• Environment
• Creditors
• Customers
• Local communities and interest groups

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Summary

• Governance Competitive advantage
• Reports and recommendations
• Stakeholder theory