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Corporate Governance

Corporate goverance refers to the way companies conduct their internal affairs as it affects stakeholders such as shareholders, regulators, customers and the public. Corporate governance relates to the internal means by which companies or corporations are operated and controlled. Good corporate governance helps to ensure that companies'
boards are accountable to the company and the shareholders. This suite of graphics deals with issues of corporate governance.

Sarbanes-Oxley

US Senator Paul Sarbanes and US Congressman Michael Oxley, sponsored the Sarbanes-Oxley Act 2002This piece of US legislation has had a profound impact worldwide on how companies now address matters of corporate governance.

Under Clause 404 of the Sarbanes-Oxley Act 2002 US companies and their non-US affiliates are obliged to provide a positive statement on their internal controls. In 1992, the committee of sponsoring organizations of the Treadway Commission (COSO) issued a landmark report on internal contol. Internal Contol: Integrated Framework, which is often referred to as "COSO". This provides a sound basis for establishing internal contol systems and determining their effectiveness.COSO is the only definitive guide available on how this should be done.Our graphics depict the five standards of the COSO Internal Contol Framework. These are: "the control environment", "risk assessment","contol activities", "monitoring" and "information & communication".


 

Sarbanes-Oxley image

 

Sarbanes-Oxley image

 

img cg8"cg_sox"

img cg23"sox_404_report"

Corporate Governance- Does it improve company performance?

The Financial Times on the 6 December 2005 reported on two surveys dealing with the above question. It argues that corporate governance is not necessarily designed to improve performance but more so as a means of mitigating the risk of disaster.

The Financial Times Reported on September 9, 2005 that the EU has dropped a plan to force companies to set up special audit committees after months of sharp criticism by business leaders and corporate governance advocates.It was feared that mandatory audit committees would impose an excessively rigid system on companies. . The new rules will allow member states to "determine that the functions assigned to the audit committee or a body performing equivalent functions may be performed by the administrative or supervisory body as a whole"

 


 

corporate governance image

 

corporate governance image

 

img cg4"Corporate Governance" img cg7"oecd_ principles"

Directors Independence

Recent corporate scandals have called into question the independence of directors in exercising their oversight role over the management of a company.The EU Commission has backed off the introduction of new prescriptive rules on determining the independence of a director. On 6th October 2004 the EU Commission published recommendations rather than rukes on Director Independence. These graphics focus on this subject.

It was reported in the Financial Times on 24 September that Unice, the European employer and business group had written to the EU Commission asking it not to proceed with two sets of corporate governance issues in October: one deals with transparency of directors pay and the other with the independence of directors. Unice fears this will trigger a new"wave of legislation"

See Paul Cummins's article dated 13 October 2004 on Director Independence

Directors Remuneration

It was reported in the Financial Times on 6 May 2005 that research by New Bridge Street, shows an increasing focus on annual bonuses, in FTSE Small Cap companies, and that LTIPs (long-term incentive plans) are rapidly replacing share option schemes.

 

Watson Wyatt, consulting firm, has published research showing non-executive directors pay has increased by 40% in 2004, reflecting the increased workload caused by recent corporate governance changes.

The Financial Times , in an interview with William Donaldson,chairman of the SEC, on 3 December 2004, quote him as pressing for new disclosure rules on executive pay that would give shareholders more meaningful information about compensation

 

See Paul Cummins's articles on Corporate Governance up to 17 January 2005

 

     
 

Non-Executive Directors

A lot is expected of non-executive directors in ensuring that management does not stray from its responsibilities and the company does not become embroiled in scandals.. However, non -executive directors have other jobs,directorships and civic commitments. There is a gap between what is expected of them and what they do. They are short of time. This graphic focuses on this subject.

 

 

The Financial Times identified in an article on 7 December 2004 by Alison Maitland, Ten Rules of Chairing a Board:

"A great chairman:

1 works well with CEO

2 encourages Challenging debate

3 regularly reviews performance

4 runs a tight but flexible agenda

5 has an open leadership style

6 was not the previous CEO

7 has broad experience

8 prepares for the role

9 is personally accountable

10 balances governance with strategy

 


 

 

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