Chapter 1 - Issues in Corporate Governance

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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

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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

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CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE

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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

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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

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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

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CH AP TER 1 – I S S U ES I N COR POR ATE G OVER N AN CE

Japan
“Consensual management” Policy boards Functional boards Monocratic boards

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