Corporate governance

Cadbury 3

NEDs: lending their name to the company just as distinguished scientists lent their name to his scientific journals by becoming members of the editorial boards of journals. However, beyond that, non-executive directors had no function in Robert Maxwell's world'.

Summary

'The annual report and accounts now provide significantly more information about corporate governance then they did a decade ago'. Referring to BCCI, Wearing argue that 'yet the auditors' report appeared to give little prior indication of the bank's precarious position'

Broad view

-directed and controlled. -The structure specifies the distribution of rights and responsibilities among the different participants in the organisation - lays down rules and procedures for decision-making.

Corporate goverence

A. Leadership: the role of board, division of responsibilities, the chairman, non-executive directors B. Effectiveness the composition of the board, appointments to the board, commitment, development, information and support, evaluation, re-election

Audit Committee

Audit committee is a committee consisting of non-executive directors and their critical role is to liaise between the main boards of directors and external auditors. It is the requirements of the Combined Code that listed companies must have an audit committee of at least three non-executive directors. Their responsibility is to review the scope, results, cost-effectiveness, independence and objectivity of external audit. Audit Committee has emerged as critical element of CG regime. http://www.eciia.eu/system/files/guidance_on_the_8th_eu_company_law_directive_05_10_2010.pdf

board

Board of directors Importance of efficient board emphasised Composition and the respective roles of executive and NE directors Separate CEO and Chairman (which facilitate accountability

Narrow View

Boards of directors are responsible for the governance of their companies. The shareholders' role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure in place.

Broad view

By doing this it provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance. (OECD principles of Corporate Governance, 1999)

corporate goverence

C. Accountability Financial and business reporting Risk management and internal control Audit committee and auditors D. Remuneration The level and components of remuneration Procedure E. Relations with shareholders Dialogue with shareholders Constructive use of the AGM

Committees

Cadbury report Due to Bank of credit and commerce international The accounting fraud includes fictitious lending and other transactions, bad loans and investments, stolen deposits and investments, and unrecorded deposits

higgs

Focus on the role of Non-Executive Directors (NEDs) A CEO should not become Chairman of the same company A senior independent director should be appointed to act as conduit for shareholders to raise issues NEDs should meet themselves at least once a year NEDs Ideally should serve two three-year terms No individual should chair more than one major company

Cad bury

Lee has summarised the code of Best Practice : Separations Independence Nominations Compensation Disclosure Audit committee Internal control Going concern

Hampel Report

Main Recommendations: different individuals as Chairman and CEO directors contracts should be one year or less Only non-executives directors on remuneration committee One senior NED should be given responsibility for liaising with shareholders training should be given to directors for their role

Cadbury 2

Maxwell communications- The fraud involved the misappropriation of funds and false financial reporting (achieved through a complex private ownership of more than 400 Maxwell companies)

why corporate governance is important -accounting

Palepu et al. -CG has become increasingly important issue in capital markets throughout in the world' .

walker review

That said recently Walker review, 2009) definition of CG is focused to shareholder, the role of corporate governance is to protect and advance the interests of shareholders through setting the strategic direction of a company and appointing and monitoring capable management to achieve this'

Cadbury

The US Senate report accused PWC of failing to protect depositors and creditors when it was aware of its accounting practices Conflict of interest for PWC -acting as the auditor of BCCI and consultancy were advising on the financial reorganisation of BCCI to overcome the financial losses from the fraud.

Cadbury

The case for audit committees, including their composition and role. The principal responsibilities of auditors and the extent and value of the audit. The link between shareholders, boards and auditors; and Any other relevant matters (O'Regan, p112)

ac

The function of an audit committee: Review of internal control procedures Review of the internal audit function Review of accounting policies Review of the annual financial statements Review of the results of the external auditors' comments/criticisms Recommend nomination and remuneration of an external auditors Receive and deal with externals auditors' comment (e.g. recommendations have been implemented)

cadbury report

The responsibilities of executive and non-executive directors for reviewing and reporting on performance to shareholders and other financially interested parties. The frequency, clarity and form in which information should be provided.

cadbury report

Transparency Disclosure and Accountability

The UK Corporate Governance Code 2014

UK listed companies should 'comply or explain' Stock Exchange (SE) endorsed the 'Principles of good governance and code of best practice in 1998. It was known as 'the combined code' and was in 2 parts. The original the combined code was a consolidation of the recommendations of Cadbury, Greenbury and Hampel. -Leadership -Effectiveness -accountability -remuneration relation with shareholder

Summary

Wearing has summarised the CG regulation (pp16-23) and opined that 'as regards their annual report and accounts, public perceptions of corporate governance are an important concern as well as their financial results'.-Kim and noffsinger also stated this

Greenbury report

excessive remuneration packages to CEOs and directors Made recommendations under four principal headings Remuneration committee Disclosure and approval provisions Remuneration policy Service contracts and compensation

Corporate governance accounting

explaining that 'these market collapses exposed problem of accounting misstatements and lack of corporate transparency, as well as governance problems and conflicts of interest among the intermediaries charged with monitoring management and corporate disclosures'.

why corporate governance is important

kim and nofsinger- It helps to ensure confidence

why corporate governance is important

reasserted by large corporate scandals e.g. Maxwell communication Corporation, Enron, Parmalat -the failure or inability of boards of directors to control and monitor business, laxity in accounting standards' etc. played important roles for those corporate scandals.

Narrow View

the responsibilities of the board include setting the company's strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board's action are subject to laws, regulations and the shareholders in general meeting'. Cadbury