Combined code on corporate governance


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Combined code on corporate governance

  1. 1. Focus notes from the original text<br />Oct 2011 GDE<br />Combined code on corporate governance<br />
  2. 2. Section A – Companies<br />Section B – Institutional shareholders<br />
  3. 3. Section A- Companies<br />Directors<br />Remuneration<br />Accountability and audit<br />Relations with shareholders<br />
  4. 4. Directors<br />The Board<br />Chairman and Chief executive<br />Board balance and independence<br />Appointments to the board<br />Information and professional development<br />Performance evaluation<br />Re-election<br />
  5. 5. The Board<br />Main principle:<br />Every company should be headed by an effective board, which is collectively responsible for the success of the company.<br />Role of the board: - <br />Provide entrepreneurial leadership.<br />Enable risks to be assessed and managed<br />Establish prudent and effective ICS<br />Set the Co’s strategic aims<br />Review performance of mgmt<br />Set Co’s values and standards<br />Ensure proper financial and human resource in place<br />Ensure Co meet obligations to shareholders & stakeholders.<br />
  6. 6. Chairman and chief executive<br />Main principle:<br />Division of responsibility at the head of the Co, between the running of the board and the executive responsibility of running the operations.<br />Separation of the role of Chairman and CEO should be in writing and agreed by the board<br />Chairman<br />responsible for leadership of the board.<br />Ensure effective communications with shareholders<br />Ensure directors receive timely, accurate & clear info.<br />Ensure constructive relations between ED and NED.<br />Chairman should be independent <br />
  7. 7. Board balance and independence<br />Main principle<br />Balance of ED and NED on the B.O.D, mainly NED<br />Avoid the hijacking of the Board by a small group of persons. No power and info concentrated in few hands.<br />Balance of skills & expertise needed<br />Board members should be independent in charater and judgement.<br />At least 50 % of board should be NED, excl Chairman<br />
  8. 8. Board balance & Independence<br />Situations where independence of board member asserted :<br /><ul><li>Past eyee of the Co
  9. 9. Material business relationship with the Co
  10. 10. Received extra remuneration from the co
  11. 11. Participation in share option
  12. 12. Close family relationship with Co directors
  13. 13. Cross directorship
  14. 14. Served on Board for more than 9 yrs.</li></li></ul><li>Appointment to the board<br />Appointment should be formal , rigorous, transparent.<br />Should be based on meritocracy and objective criteria.<br />Board should ensure there are plans for succession to the BOD and senior mgmt<br />A nomination committee will lead the appointment process<br />For FTSE CO , board wont approve NED being on several BODs<br />A section of the annual report should be dedicated to the nomination committee and their work in the appointment process<br />
  15. 15. Information and professional development<br />Information should be supplied to board on a timely manner and with appropriate quality. ( Accurate, timely , clear information)<br />Directors need induction prior to joining the board<br />Directors need to refresh their skills and knowledge regularly.<br />The Co secretary , via the Chairman , ensure good info flows to the board.<br />Co Sec advise board of all governance matters.<br />
  16. 16. Performance evaluation<br />Annually Board will evaluate the performance of <br />The board itself<br />All committees<br />All directors- to see if they contribute effectively and show commitment.<br />Board will state , in the annual report, how performance evaluation has been conducted.<br />
  17. 17. Re-election<br />Directors submitted for re-election on a regular basis, subject to satisfactory performance.<br />Board should ensure planned and progressive refreshment of the board.<br />Any NED to be reappointed after 6 yrs , appointment should be subject to rigorous review and approval.<br />
  18. 18. Remuneration<br />Level and make up of remuneration<br />Procedure<br />
  19. 19. Level and make up of remuneration<br />Remuneration should be sufficient – to attract, retain, motivate quality directors to run the company<br />Remuneration of ED , should be structured and link rewards to performance<br />BOD should regularly benchmark with industry’s average remuneration<br />Performance related remuneration will help to align directors interests with those of s/h<br />The code provide guidelines for designing schemes of performance related remuneration<br />Ned’s remuneration should reflect time commitment and responsibilities attached to the role.<br />NEDs shouldn’t receive share options , unless approved by s/h<br />Remuneration comm to determine termination benefits of directors.<br />
  20. 20. Remuneration – Procedure<br />Board should have a formal procedure to determine policy on executive remuneration and to fix remuneration package of individual directors.<br />No director should be involved in fixing their own remuneration.<br />Remuneration committee decides of remuneration of Chairman and ED<br />The board or the s/h will determine the remuneration of NED.<br />
  21. 21. Accountability and audit<br />Financial reporting<br /><ul><li>The board should present a comprehensive and balanced assessment of the Co’s position and prospects.
  22. 22. In the annual report , the directors explain their responsibility for preparing the accounts
  23. 23. The directors report that the business is a going concern, and if needed qualifications should be included.</li></ul>Internal control<br />The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.<br />
  24. 24. Audit committee and auditors<br />The board should establish formal and transparent mechanisms to convey financial reporting and internal control principles.<br />Also maintaining an appropriate relationship with the company’s auditors.<br />An audit committee should be set up comprised mainly of NEDs, with recent financial experience<br />Roles and responsibilities of the Audit comm:<br />Monitor integrity of FS, review ICS, monitor effectiveness of Internal audit function, recommend about appointment/remuneration/removal of ext auditors, to review and monitor the external auditor’s independence, monitor non-audit services offered by external auditor in line with ethical guidelines, <br />
  25. 25. Relations with shareholders<br />Dialogue with institutional shareholders<br />There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place<br />Constructive use of AGM<br />The board should use the AGM to communicate with investors and to encourage their participation.<br />
  26. 26. Section B- Institutional shareholders<br />Dialogue with company<br />. Institutional shareholders should enter into a dialogue with companies based on the mutual understanding of objectives.<br />Evaluation of governance disclosures<br />Institutional shareholders should give due weight to all relevant factors drawn to their attention.<br />Shareholder voting<br />Institutional shareholders have a responsibility to make considered use of their votes.<br />