Se ha denunciado esta presentación.
Utilizamos tu perfil de LinkedIn y tus datos de actividad para personalizar los anuncios y mostrarte publicidad más relevante. Puedes cambiar tus preferencias de publicidad en cualquier momento.

Acco1143 session 2 corporate governance

Financial Accounting

  • Sé el primero en comentar

Acco1143 session 2 corporate governance

  1. 1. Corporate governance part 2Dr Agnieszka Herdane-mail: A. 0208 331 9024
  2. 2. Factors underlying the lack of confidence infinancial reporting:• Loose accounting standards, that allows considerable latitude• Lack of clear framework to ensure directors are able to continuously review business controls• Competitive pressure within companies and auditors, making it difficult for auditors to maintain independence from demanding boards• Lack of apparent accountability regarding directors remuneration and compensation for loss of office. 2
  3. 3. Group work 1Group Presentation of case study:Group 1: WorldComeGroup 2: ParmalatGroup 3: BarringsGroup 4: Shell• What was wrong with the company?• Who fail to perform their duties?• What mechanisms of corporate governance failed?• What lesson could be learn from this situation?• What solution would you suggest to avoid similar situation in the future? 3
  4. 4. Company departmental structure organised according to business function Board of directorsFinance Personnel Marketing Operations 4
  5. 5. A divisional organisational structure Board of directors Central services – information technology, personnel, research and development North South East West division division division division Finance Finance Finance FinanceOperations Operations Operations OperationsMarketing Marketing Marketing Marketing Other Other Other Other 5
  6. 6. Board of Directors: represent shareholders Shareholders Board ofLegally Directors Theory:responsible mgt servesfor the firm, the board.but mgt has Management Reality?time,expertise, Complexinfrastructure Operations 6
  7. 7. Board CompositionDirectors:• Executive – Chief Executive Officer (CEO) /Managing Director – Chief Operating Officer (COO) – Chief Financial Officer (CFO) / Treasurer – Secretary.• Non executive 7
  8. 8. Directors Functions• Review financials and financial projections• Set long-term (strategic) goals• Set capital structure• Approve major debt financings• Oversee resource allocations (investment)• Dividend policy• R&D• Monitor competition• Evaluate global prospects 8
  9. 9. Director Liability Adverse events causing losses to shareholders where directors failed toinform themselves and failed to assure that there was an adequate information and reporting system in place ( lack of good faith). 9
  10. 10. Cadbury Report (1992) if the roles of chairman and chief executive were not filled by two different individuals, then a senior member of board should be present who was independent a third of the board be comprised of non-executive directors who are able to influence the board’s decisions that majority of the non-executive directors should be independent of management and free of any relationship that could affect their independence 10
  11. 11. Cadbury Report (1992) It was recommended that at least two of the minimum requirement of three non-executive directors should be independent concerns about the supply of adequately qualified non-executive directors. 11
  12. 12. Cadbury Report (1992)Suggested ways of ensuring the independence of non- executive directors: fees payable to non-executive directors, stipulating that a balance needed to be struck between recognizing the value of contribution made by non-executive directors avoiding compromising their independence non-executive directors should not to take part in share option schemes The central issue is to ensure that an appropriate relationship exists between the auditors and the management whose financial statements they are auditing 12
  13. 13. Greenbury Report (1995) focused specifically on issues relating directors remuneration („Fat Cat”) unseemly pay increase for company directors establishing balance between directors remuneration and their performance the total compensation of directors and that of the chair and the highest paid UK director would each be separately disclosed, with a breakdown into base salary and performance-based elements 13
  14. 14. Greenbury Report (1995) the pay of executive directors should be determined by a remuneration committee, to be comprised wholly or mainly of non-executive directors and chaired by one of the latter. the remuneration committees be composed entirely of non- executives and be directly accountable to shareholders, with committee chair attending the AGM 14
  15. 15. Higgs Report(1998) The roles of Chairman and Chief Executive should not be exercised by the same individual at least half of a company’s board of directors should be independent non-executive directors. one (or several) non-executive director(s) should take direct responsibility for shareholder concerns, effectively championing shareholders at board level Institutional Investors should enter into a dialogue with companies based on the mutual understanding of objectives 15
  16. 16. Turnbull Report (1999)• Focuses on Internal Control• formalize the sets of procedures and represent an explicit framework for companies to refer to as a benchmark when developing their own internal control strategies 16
  17. 17. Higgs Report (2003)• Effectivness of non-executive directors• greater proportion of non executive directors on boards• remuneration of non executive directors• stronger links between non executive directors and companies principal shareholders 17
  18. 18. Smith Report (2003)• Relationship between auditor and audited company• creation of audit committee 18
  19. 19. Group work 2• Discuss which issues highlighted by different reports has been implemented in your home country. Give examples. Which areas are has not been put into practise and why?• Present your findings 19