Corporate Governance is the means by which a company is controlled or operated.
Advantages Greater transparency Greater Responsibility Greater efficiency of operations
Better able to respond to risks
Less likely to be mismanaged
A successful company has an effective board of directors whos role is to promote long term sustainable success thereby generating values for the shareholder.
The Board Of Directors should establish the companys purpose value and strategy. They should lead by example and promote the desired culture.
The Board of directors should ensure that the necessary resources are in place for the company to meet its objectives -Should describe in the annual report how the opportunities and risks of the companys future has been addressed.
-The board should assess and monitor the culture of the organization. Where behaviour throughout the business is not concerned with the overall values and strategy managment has to take corrective action.
-Atleast half the board excluding the chair should consist of NEDs.
The chairman should be appointed separately.
The role of the CEO and Chairman should be separate.
Bro is not NED if
-Has been an employee of the group or company in the last 5 years.
-Has or had a relationship with the company directly or either as a partner director or senior employee of another company in contact within the last 3 years.
-Has recieved or recieves remuneration from the company on top of the directors fees such as share options \
-Has close ties with any of the companys directors senior employees etc
-Represents a significant shareholder -Has served on the board of that company for more than 9 year since the date of employment One of the NEDs should be appointed as the senior independent director Full time executive directors should not take up more than one role as the NED of a FTSE 100 company.
Appointment to the board should be subject to a formal rigourous and transparent procedure.
Appointment should be on the basis of merit and experience and also should promote diversity.
The board should have skills and knowledge A nomination committe should be setup to appoint the board of directors.
The nomination committee should mostly consist of NEDs
Chair should not be a member of the committe when committee is dealing with their succession.
All directors should be subject to annual reelection The chair should not remain in that post for a period more than 9 year from the first date of appointment.
Formal and rigourous appraisal of the board must be done. Chair should decide to have an external board revaluation every 3 years For FTSE 350 comapnies the external evaluator must be named in the annual report.
THE AUDIT COMMITTEE should include minimum of 3 NEDs or in smaller companies minimum 2
The chair should not be part of the audit comittee
Atleast one member should have some financial expertise The whole committee should have competence relating to the sector it operates in the whole point of this audit committee is to monitor if the financial statements are being prepared with integrity
Providing advice if the financial reports of the company are free from bias and are understandable
Reviewing the effectiveness of the internal audit function Reviewing the companies internal audit controls The objectives of an audit committee is to ensure that there is increasing public confidence in the integerity and objectivity of the financial statements
Asissting Directors in meeting their responsibilites for financial reporting Strengthning the position of the companys internal auditor by providing an external channel of communication