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Key issues in corporate governance - Coggle Diagram
Key issues in corporate governance
Composition of boards
More representative boards, there are quotes for women on boards and growing requirements for more social and ethnic diversity on boards and within the pipelines for board succession
Independence of board members to ensure that there is challenge to a dominant chairman or CEO.
Financial reporting
Every company under CA2006 is required to keep accounting records which enable the directors to prepare accounts which comply with the appropriate accounting standards
The accounts should show with reasonable accuracy the financial position of the the company at that time
Evidence shows that directors and senior managers for many reasons produce accounts that disguise the true financial performance of their company. This may be to enhance their own rewards, cover up fraud, or to cover up poor performance due to their own lack of experience and understanding of the business
Stakeholder relations
Directors of all companies in the UK now have a statutory duty under s.172 of CA2006 to take into consideration the interests of employees and foster business relationships with suppliers, customers and others
The Companies (Misc. Reporting) Regulations have introduced reporting requirement for companies on their compliance with s.172
Companies will have to disclose how the directors have engaged with employees and other stakeholders and how they have taken stakeholders interests into consideration in their decision making
For listing companies, the UKCG Code 2018 has suggested methods of workforce engagement that boards could adopt. They include
A director appointed from the workforce
A formal workforce advisory panel
A designated NED
Corproate culture
There is a growing focus on corporate culture and the importance for the long term sustainability of the company on getting the right culture embedded within the brines practices of the compnay
The UKCG Code 2018 has introduced for the first time a provision requiring boards to assess and monitor cultureu
Social responsibility and sustainability
The focus on an organisation's social responsibility activities has grown over recent years
One of the main reasons for this appears to be millennial generation entering the workplace
Millenials want to be heard and have a voice in both contributing and making a difference in a boarder community
They constantly share their views and opinions through social media platforms
The characteristics of the millennial generation has led to an overwhelming demand for social responsibility as the potential workforce and consumer base look to do business only with those whom they feel are making a positive impact on society and pillorying those through social media who appear to be negatively impacting society
An increase in non-financial reporting largely due to regulatory changes and the expectation of investors and stakeholders is also occuring
Boards are having to justify their activities more on the long term sustainability of their organisations rather than the previous short term view of meeting quarterly an half yearly targets
Secual harassment in the workplace
The Equality Act 2010 states that sexual harassment is a behaviour that is either meant to or has the effect of
Violating your dignity
Creating an intimidating, hostile, degrading, humiliating or offensive environment
Sexual harrasment can include
Sexual comments or jokes
Physical behaviour including unwelcome sexual advances, touching and various forms of sexual assual
Displaying pictures, photos or drawings of a sexual nature
Sending emails with a sexual content
Boards need to ensure that policies and procedures within the organisation create behaviours that do not them open to condoning sexual harassment
Remuneration of directors and senior executives
There is evidence reflected in fewer remuneration policy and report voting rebellions that companies are taking into account the guidance of institutional investor representative bodies when putting together the content of their remuneration policies
Feedback is also being sought for the major shareholders
The issue of pay equality between men and women has again been in the news with high profile cases such as the pay practices of the BBC in 2017
This poses a reputation risk for many organisations
Boards should be reviewing their pay policies and ensuring that their remuneration practices are fair
Shareholder dialogue
There is a requirement for greater communication between a company and its shareholders
The amount companies are required to disclose to their shareholders appears to grow by the year
The challenge is that the profile of shareholdings in UK listed companies is changing with increased short-term holdings, a fall in retail shahreolers and higher foreign ownership
It is difficult for companies to have the dialogue intended through the UK's corporate governance framework of physical AGM and engagement with institutional shareholders with one on on meetings with the chairman on governance or executive management on operational performance
Performance of directors
The time commitment na scarcity of directors to give the required attention to the companies whose boards they sit on it also becoming a topic of interest for ivnestors
Insittuional Sharehlder Services and Glass Lewis both recommended voting against overboard directors which they define as
Executive directors sitting on more than than two public company boards
Non executive directors sitting on more than five public company boards
The 2018 Code recommends that executive directors should have no more than one FTSE 100 board non-executive directorship
The 2018 Code only requires that NEDs should provide constructive challenge and strategic guidance to management in addition to holding them to account
Listed companies in the FTSE 100 are also required to hold annual evaluations using an external evaluator of the whole board, the chair and individual directors and its committees. For FTSE 350 companies this should be at least every three years
Risk management
Since the global financial crisis there has been a growing expectation that the boards of listed companies focus more on risk management
Previously tis had been delegated to management and the board played a small role in it
The FRC guidance made it clear that the board has a primary role in the identification and management of risk
Technology and information governannce
Due to the ever greater reliance on technology, organisations are required to manage the risks associated with technological disruptions within their organisations as well as na often insatiable desire by management in many organisations to keep up with the latest technological developments
The governance of information is becoming critical for organisations
The management of both information and knowledge can offer competitive advantage and many organisations are increasing their focus on both areas.
Boards are increasing being expected to ensure that information and knowledge are managed effectively within their organisations and that they are protected
Recent global cyber attacks have highlighted the importance of cyber security risk management for board directors
Companies no longer have a choice as to whether they mitigate against cyber attacks
In future this should be an important part of their risk management process
Countries are starting to look at whether they need to regulate with respect to cyber security. For example the SEC has expanded its focus on cyber security already, taking action against corporation for not protecting customer data against cyber attacks
Tax planning
Boards need to consider the reputational risk associated with their tax planning and other accounting policies