Other Governance Issues

Question 1

What approach to CG has the US adopted?

What does s.302 SOX say?

What are the consequences?

Answer 1

US has adopted a rules based approach to CG following the corporate collapses of Enron, WorldCom etc. = The Sarbanes-Oxley Act of 2002 (SOX) was enacted in 2002

S.302 SOX = CEO and CFO must certify the quarterly and annual reports
○ False certifications = potential civil liability
S.309 = potential criminal liability

Question 2

What is a unitary board system ? (4 points)

What is a 2-tier board system? (5 points)

Answer 2

1. A unitary board system = 1 Board of Directors exists and decisions are taken by a single group of directors, led by the company chairman.
2. Sometime referred to as a one-tier board system.
3. The board has, and exercises, both executive and oversight powers = responsible for manging the business and overseeing compliance with laws and regulations
4. Anglo-Saxon model and has also been adopted in the CG framework in Scandinavia.

1.A 2-tier board system splits up the executive and oversight powers into 2 distinct boards, a management board, and a separate supervisory board.
2. The management board hold executive powers only and are responsible for the management of the business = usually oversee managers who run the day-to-day business.
3. The supervisory board have oversight powers only and supervise the management board and management = responsible for ensuring the board of directors and management don’t violate laws or the articles.
4. Also responsible for appointing and dismissing the management board
5. The CG framework in Germany adopts a 2-tier board system.

Question 3

GOVERNANCE IN THE PUBLIC SECTOR.
What are Nolan’s 7 principles of public life?

Answer 3

1. Selflessness = holders of public office should take decisions solely in terms of the public interest
2. Honesty = holders of public office should be truthful
3. Objectivity = holders of public office should make choices on merit
4. Leadership = holders of public office should promote and support these principles by leadership and example
5. Accountability = holders of public office are accountable for their decisions and actions to the public and must submit themselves to scrutiny
6. Integrity = holders of public office should avoid undue influence and conflicts and declare etc.
7. Openness = holders of public office should act and take decisions in an open and transparent manner

Question 4

GLOBAL PRINCIPLES OF CG.
What are the 6 G20/OECD Principles of Corporate Governance?

Answer 4

1. Ensuring the basis for an effective CG framework = framework should promote transparent and fair markets
2. The rights and equitable treatment of shareholders and key ownership functions = framework should protect and facilitate the exercise of shareholders’ rights and ensure equitable treatment of all shareholders
3. Institutional investors, stock markets, and other intermediaries = framework should provide sound incentives and good CG throughout the investment chain
4. The role of stakeholders in CG = framework should encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and sustainability
5. Disclosure and transparency = framework should ensure timely and accurate disclosure on all material matters
6. The responsibilities of the board = framework should ensure effective monitoring of management by the board, and the board’s accountability to the company and shareholders