Please enable JavaScript.

Coggle requires JavaScript to display documents.

Corporate Governance ((Principles of CG Code UK (RASLE) (Effectiveness…

Corporate Governance

Board Structure

Single Tier

NEDs presence brings additional advantages

1.Expertise
2.Equally responsible for success of the company
3.Decision making of the board is well balanced
4.Broader and better idea generation
5.Less opportunity for frauds
6.Investors confidence increase for all above

Two Tier

Supervisory

Upper Tier

1.Supervision of the lower tier
2.Strategy setting
3.Appoint lower tier board/advise
4.Representatives from employees/community as NEDs (may be)
5.Chairman heads & Coordinates
6.Appointments at AGM by S/Hs

Management

Lower Tier

1.Management operations
2.Only Executives are involved
3.CEO is head & Coordinate Mgt. Board 
4.Reports to the upper tier

Advantages

1.Owners/Management decision making is independent
2.S/Hs control is not explicit
3.Most S/Hs actively involve in running company
4.Board meetings are separated
5.SB can appoint MB which allows direct control too.

Disadvantages

1.Lack of accountability
2.Powers are diluted
3.If SB does not have anybody involve MB then problem at operational realistic
4.Agency problem between SB & MB
5.Slow decision making
6.If transparency is less then governance efficiency would be affected

Development of CG Code in UK

Cadbury

Greenbury

Hampel

Turnbull

Higs

- - 2 more items...

1.Internal Control
2.Review periodically

All payments to EDs  Balanced with Performances

1.Composition of BOD
 o Chairman/Independent
 o Chairman/CEO
2.Institutional Investors
 o Continuous/Greater dialogue
3.Audit & Accountability
 o RAN Comts
4.Comply or Explain

Committees of BODs

Remuneration

Objectives

1. Create a clear policy on remuneration well understood and supported by the shareholders
2. Set challenging target for long term success of the company and align the targets to executive pay
3. Reports to the shareholders the reasoning(rational) behind the remuneration policy
4. Have access to independent external consultant / experts

Responsibikities

1. Review the remuneration, set targets, set terms of contract for EDs
2. Monitor and Recommend suitable remuneration for EDs & Senior Managers
3. Establish pension schemes for directors 
4. Set detail remuneration scheme for chairman
5. Ensure EDs and Senior Mgtms are fairly remunerated for their individual performance as well as over all company 
6. Ensure that the shareholders consider the remuneration decisions are truly independent
7. If an ED looses his job then it is the remuneration cmtee that negotiates compensation

Audit

Unhealthy Relationship between Directors and Auditors

Why?

1. Auditors remuneration is decide by directors
2. Discretion to select and nominate shareholders for S/H approval
3. Auditors report directly to directors
4. Directors have the discretion to provide other lucrative works to auditors

How Address? #

1. Only NEDs(At least one should have recent financial experience)
2. Formal Terms of Reference(TOR)
3. Must meet periodically at least 3 times a year
4. Should meet auditors at least once  without any Ex Directors

Responsibilities

1. Review the Financial statements/Interim reports
2. Review internal systems for risk and control
3. Discuss with the auditors the findings after the audits
4. Review the work of the internal auditors
5. Make decisions on appointments/remove of external auditors
6. Negotiate audit fee
7. Review audit report / management letter
8. Put a system for whistle blowing & encourage to expose irregularities
9. Specially asses the internal control for finance

Nomination
(Appoinments)

UK CG Code 2010 Recommendation for formal, rigorous and transparent procedure for appointments to the BOD.

1. Creates nomination committee
2. Chairman should char, except to decide his successor
3. Evaluate skills, knowledge, and expertise of the board & Suitable candidate
4. Annual report should disclose other commitment of  chairman
5. Other commitment of NEDs
6. Exs should not be in any other board of FTSE 100 companies
7. Separate section in annual report to disclose the work of nomination committee.

Responsibilities

1. Periodic Review of the board structure,size, composition and make recommendation to the board
2. Ensure that there is good balance between EDs and NEDs
3. Ensure that there is diversity in the board
4. Balance the power in the board to reduce the dominance of CEO/Chairman
5. Regularly evaluate experience skills and the knowledge of the board
6. Succession planning for directors
7. Make descriptions of the role, capabilities required for any particular board appointment
8. Identify and Nominate suitable persons to fill board vacancies
9. Recommend for re-appointment of directors
10. Ensure independence to create best benefits to the shareholders

Why?

1. Shareholder confidence of the companies independent, transparency, risk & control improves
2. Risk is well balanced
3. Brings more experts to the company as NEDs
4. Work load for EXs goes down
5. Compliance with CG codes 2010
6. Companies Image and Perspective improves

1. Legal system & How well rule of law is established
2. How well the Economy & Society are developed
3. Attitude of the people & politicians & how well educated, principled they are.
4. History, Values & Culture of the society
5. Who owns the largest amount of Shares in most listed companies.(families/banks/public)
6. How much & frequently foreign investments flow into the country
7. Global trends, economics & political climate, competitivenes