Issues in Corporate Governance

CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE ADVANCED FINANCIAL MANAGEMENT †¢ †¢ †¢ Investment decisions Financing decisions Dividend decisions Financial objectives Primary objective – maximise shareholder wealth Secondary objectives – meeting ‘other’ predetermined targets Stakeholders †¢ †¢ †¢ †¢ †¢ †¢ Shareholders Management and employees Customers Suppliers Lenders Government w w w . s tu d yi n te ra cti ve . o rg 1 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE Stakeholders Suppliers Measures Price Payment Security Liquidity Taxable profit Inflation Employment Investment Lenders Government w w w . tu d yi n te ra cti ve . o rg 2 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE w w w . s tu d yi n te ra cti ve . o rg 3 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE Corporate Governance Are the board effective? Are they making good decisions? Can we obtain assurance that they are? Are the board effective? Combined Code Board of Directors Chair CEO Execs Non-execs w w w . s tu d yi n te ra cti ve . o rg 4 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE Are they making good decisions? Higgs Report Cadbury Report Greenbury Code Key guidance Smith Turnbull Can we obtain assurance that they are?Disclosure FSA Listing Rules FSA Disclosure and Transparency rules Combined Code w w w . s tu d yi n te ra cti ve . o rg 5 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE More formalised Independent audit committee Quarterly reporting USA Sarbanes Oxley Independent directors PCOAB Critical accounting policies Germany EU company law Two-tier board of directors Board of directors Supervisory board Management board w w w . s tu d yi n te ra cti ve . o rg 6 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE Japan â€Å"Consensual management† Policy boards Functional boards Monocratic boards w w . s tu d yi n te ra cti ve . o rg 7 CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE SUSTAINABILITY AND ENVIRONMENTAL RISK †¢ Sustainability – balancing growth with environmental and social concerns â€Å"At BP, we are working hard to restore trust in our ability to operate safely and responsibly wherever we do business. Our approach to sustainability covers issues relating to governance and risk management, safety, the environment, the energy future and our local and global socio-economic impact. We aim to report on these issues in a way that answers key questions raised by our stakeholders. Carbon Trading 1. Governments hand out free tradable rights to emit carbon dioxide to big industrial polluters 2. Companies buy additional pollution credits from projects that claim to emit less greenhouse gas than they would have without the investment Environment Agency 1. Protects air, land and water used by society in England and Wales 2. Offers guidance to busine sses on environmental issues †¢ †¢ †¢ †¢ †¢ Environmental Permitting Flood Pollution and emissions Waste Water Environmental Audits †¢ †¢ †¢ Energy saving Waste reduction Business processes w w w . s tu d yi n te ra cti ve . o rg 8