ACCA Paper P1: Professional Accountant

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ACCA Paper P1
Professional Accountant
For exams in 2010
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ACCA P1 Professional Accountant
ExPedite Notes
Chapter 2
Corporate Governance and Responsibility
START The Big Picture

Corporate governance is the system by which a business is managed in the best interests of its stakeholders, the relationships between stakeholders and often constraining the executive power of directors to reduce the chance of dysfunctional behaviour. The UK Combined Code (2008 version) states Good corporate governance should contribute to better company performance by helping a board discharge its duties in the best interests of shareholders; if it is ignored, the consequence may well be vulnerability or poor performance. Good governance should facilitate efficient, effective and entrepreneurial management that can deliver shareholder value over the longer term. It is underpinned by nine core concepts. In the exam, you may have to define these and apply them. This is their inter-relationship and much abbreviated definitions. You should attempt to remember fuller definitions from your course notes in addition to these.
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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.
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ExPedite Notes
Fairness
Neutral between all legitimate stakeholders Straightforward, honest, fair dealing Decisions based on quality evidence and rational criteria Free from bias, disregarding matters irrelevant Truthfu, not misleading. Fee from "spin" Presumption of full and frank disclosure Acting in a timely fashion to correct weaknesses Answerable to stakeholders for actions/ decisions
Integrity Quality decision making Judgement
Independence/ objectivity REPUTATION Honesty/ probity
Openness/ transparency Investor confidence Responsibility
Accountability
Fairness This is a neutral attitude between stakeholders, having respect for rights and views of any other group with a legitimate interest. Independence (objectivity) Objectivity is a state or quality that implies detachment, lack of bias, not influenced by personal feelings, prejudices or emotions.
Integrity Honesty, fair dealing and truthfulness (IFAC definition) High moral character
Judgment Making decisions that will maximise organisations prosperity, using evidencebased decision making to reach good decisions. Accountability This is being answerable for the consequences of decisions and actions.
Responsibility This is the responsiveness to the need for corrective action. A director showing responsibility is one who is taking ownership of a problem in order to solve it.
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Probity Probity means truthfulness and not misleading people. It is linked to openness.
Reputation This is the view that other people have of the business. A strong reputation will contribute to share price and thus to shareholders wealth.
Openness/ transparency This is a default assumption that transparency is best.
KEY KNOWLEDGE Agency Theory and Costs

Directors manage the business on behalf of the shareholders. This makes the directors agents of the shareholders (who are the principal). The shareholders in a large business cannot possibly have all the information available to the directors, for practical reasons and also commercial sensitivity (a rival company would buy shares to get information about competitors if full disclosure of all facts to principal were required). This generates an asymmetry of information between the principal and agent. This agency problem arises from the different self-interest of the principal (eg wants to minimise costs and risk) and the agent (eg wants to maximise their own remuneration) and the information asymmetry between them. The agent arguably has an inbuilt conflict of interests in that he/ she must act in the best interests of the principal (eg my maximising profit and minimising costs), perhaps to their own personal detriment (eg the agent would probably like to maximise their own remuneration, at the expense of the principal). This is referred to as the agency problem. Costs of monitoring the agents behaviour to ensure that the agent is acting in the best interests of the principal are referred to as agency costs. Examples of agency costs (costs that would not be incurred if the principal managed the business themselves directly): Directors remuneration Internal audit costs External audit fee.
Review and self-test 1.1 List and explain five other agency costs that you would expect to find in the management of an investment fund.
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KEY KNOWLEDGE Transaction Cost Theory

Transaction cost theory explains why companies exist. The theory rests on two core things to imagine: In a world with perfect competition and no companies, transaction costs would be huge. Each contract would be negotiated individually directly between people and there would be no recurring contracts. For example, each day of labour would be negotiated individually, as there would be no companies for us to be employed by. So although there would be a lot of competition and no agency problem, there would be vast waste. Within a company, there are no transaction costs, since employees simply have to follow legitimate instructions, or choose to leave the company. This means that by the economy organising itself into companies, transaction costs can be greatly reduced; although at the cost of increasing agency costs. Similarly, if customers were to try to engage in the companys activities on their own, the costs would be prohibitive. So companies naturally grow as a means of reducing individuals transaction costs. As companies grow, however, agency costs tend to arise. The size of a company is the natural balancing point where the total of its agency costs and transaction costs are minimised.
KEY KNOWLEDGE Stakeholders

Definition: Any person, group of people or entity that may be affected by the activities of an organisation. Each stakeholder has their own wishes (stakeholder claims) which are often in conflict with the wishes of other stakeholders. This is stakeholder conflict. Johnson & Scholes classify different types of stakeholder using the ICE mnemonic: Internal Connected Within the business itself Outside the business itself, but closely affected, often with a direct financial link
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ExPedite Notes
External
Affected by the business but only remotely or non-financially.
Internal and connected stakeholders may be referred to as narrow and all stakeholders including external stakeholders may be considered wide stakeholders.
Possible exam relevance: How well are the directors identifying stakeholders and prioritising the conflicting claims of stakeholders? How legitimate is a claim of an individual stakeholder (ie how fair is their expectation that they can influence the business?)
KEY KNOWLEDGE Mendelow Matrix

This gives an indication of how directors of a business should prioritise their time and give relative weighting to different stakeholder claims in the event of stakeholder conflict. Level of interest Low Level of influence Low High Minimal effort required Keep satisfied High Keep informed Key players (core stakeholders)
Stakeholders are often passive (ie they take little or no daily interest in the decisions made by companies). However, others are much more active, which acts as a much more serious brake on the activities of the board of directors. Shareholder activism is a phrase that troubles many directors, since it is often associated with a shareholder rebellion against the authority and decisions of directors. In general, company law is written so as to prevent minority shareholders from having much influence over the board of directors, so as to prevent constant distraction to the directors from excessively activist shareholders. In UK law, this is referred to as the rule in Foss v Harbottle. The majority of shares in most large companies are held by institutional shareholders, such as insurance companies, investment funds and pension funds. The managers of such
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investment funds will be paid to monitor the activities of the management of their investee companies, so they are the most likely to become activist in their stance. Review and self-test 1.2 Under what circumstances do you think it might be appropriate for an institutional investor to become activist in their stance? What are the costs to the company of having shareholders become more activist?
Normative v Instrumental approaches to issues

Normative may be defined as a statement of what a person or society believes norms of behaviour ought to be, rather than necessarily what they presently are. So normative economics is a statement of how an economy ought to work, rather than an analysis of how it actually does presently work. Instrumentalism is a pragmatic philosophical view that ideas should be judged by evidence of their success. Review and self-test 1.3 Charter Co is a successful investment business. The mangers of the fund presently manage a trust fund, for a teenager who has not yet achieved the necessary age to direct their activities or cash in the funds value. The teenager has written to Charter Co to say that she does not wish Charter Co to invest in any companies that make profits from making weapons, or from the meat industry. At the moment, Charter Cos fund managers invest in whatever generates the best possible return. Required Analyse the responsibilities of the fund managers of Charter Co in the above situation from both a normative and an instrumental point of view.
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ExPedite Notes
KEY KNOWLEDGE Pervasive Issues in Corporate Governance
Possible exam relevance: A useful checklist for assessing the performance of a board of directors. Could be used to identify conflicting directors duties, eg in a takeover situation. Lots of scenarios when this could be useful, not least to possibly define what constitutes good corporate governance.
Below is a list of matters to consider when attempting to assess the performance of a board of directors. A number of these points are developed later on in these ExPedite notes. Frequently occurring issues in corporate governance F Fiduciary duty How well do directors (including non-executive directors) understand their legal duty of trust to shareholders and other stakeholders? Is constructive use made of the annual general meeting? Correct balance of execs/ non-execs with appropriate skills? Of directors and of senior staff. Appropriate to motivate and proportionate to skill? How well are internal controls working? Are they excessive to slow down the businesses? Is the CSR appetite of shareholders and other key stakeholders properly understood and appropriately actioned? Does the audit committee in particular have good relations with the external auditor? Are directors up to date with necessary skills? Do they receive appropriate training upon induction? Does the board make decisions in accordance with the ethical stance of shareholders and other key stakeholders? Is there active and meaningful dialogue with
A B R I C
AGM usage Balance of board membership Remuneration Internal control Corporate social responsibility
A T E
Auditor relations Training Ethics
Shareholder relations
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ExPedite Notes
shareholders, especially institutional shareholders? V E Voluntary disclosure Evaluation Are disclosures made beyond what is legally required? Are directors fairly and frequently subject to performance evaluation? Is this conducted by somebody with appropriate skills and sufficient objectivity? Are risks properly identified using the COSO framework? Is there a risk awareness culture embedded? Is there evidence that directors are properly briefed before each board meeting? Is there a clear plan in place to enable rapid replacement of any directors and senior staff who may suddenly leave or die?
Risk identification
B S
Briefing Succession planning
KEY KNOWLEDGE How boards operate

The syllabus for P1 requires you to have a moderately detailed knowledge of the legal and regulatory frameworks within which boards of directors operate. These include: Legal rights and responsibilities Time-limited appointments Retirement by rotation Service contracts Removal Disqualification Conflict and disclosure of interests Insider dealing/ trading.
Rights and responsibilities of directors Under Companies Act 2006: The Companies Act 2006 includes numerous duties of directors, most of which are based around agents general duties to act in good faith, honestly and not make a secret profit. The Companies Act 2006 introduced additional duties including a requirement to
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ExPedite Notes
promote the success of the company and act in the interests of a wider range of stakeholders than only the shareholders. Other specific directors duties include: Act within the companys constitution Promote success (as noted above) Exercise independent judgement Exercise reasonable care, skill and diligence Avoid conflicts of interests Not accept benefits from third parties Declare any personal interest in transactions.
Under Combined Code 2008:
CC08 includes a number of duties of directors, which are included in these notes. They are, of course, in the form of principles rather than specific legal duties. CC08 has no direct legal effect, though failure to comply with its requirements may be seen as a failure to exercise directors duties properly.
Time-limited appointments Under Companies Act 2006: Section 188 CA 06 limits the length of a directors service contract to two years. Longer contracts are possible, but they are only valid if approved by ordinary resolution of the shareholders. CC08 requires a maximum of one years notice to terminate a directors service contract. There is also a requirement for one third of the board to retire each year by rotation, thus limiting the term to three years. Non-executive directors are subject to further time limits, as noted in these notes.
Retirement by rotation Under Companies Act 2006: CA 06 does not have any direct rules on this, but the model articles suggested by UK company law require all directors to retire at the first AGM after their
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ExPedite Notes
appointment and then be reappointed at least once every three years. Under Combined Code 2008: The rules are similar to CA 06.
Service contracts Under Companies Act 2006: Must be approved in advance if longer than two years (s.188) and must be available for shareholders inspection (s.227 et seq). No specific mention.
Removal Under Companies Act 2006: A director may be removed any time by an ordinary resolution of the shareholders, though the director must be given special notice of 28 days to prepare a case to defend themselves against removal. No specific mention.
Disqualification Under Companies Act 2006: A person may not hold office as director if they are disqualified under the Company Director Disqualification Act 1996. A person may be disqualified for a number of reasons, including fraud and persistent failure to file company accounts. No specific mention.
Conflict and disclosure of interests Under Companies Act 2006: Under Combined Code 2008: See above. No specific mention.
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ExPedite Notes
Insider dealing/ trading Under Companies Act 2006: The Companies Act 2006 does not make specific reference to insider dealing, but insider dealing would be a clear breach of directors fiduciary duty. Insider dealing is using privileged information to make a profit or avoid a loss, at the expense of others not privy to the inside information. It also includes other offences such as passing inside information to others. Insider dealing can carry serious criminal penalties. Under Combined Code 2008: No specific mention.
KEY KNOWLEDGE Roles of Chairman and CEO

This is an important issue and a frequently occurring exam topic. Chairman (the head of state of the company) Provide leadership to the board, ensuring its effectiveness and setting its agenda. Ensuring the board receives accurate and timely information, so directors cant be railroaded into following an over-dominant CEOs wishes. Ensuring effective communication with shareholders and that their views are communicated to the board as a whole. Facilitate effective contribution from non-executive directors (NEDs), ensure constructive relations between execs and NEDs. Meet with the NEDs without the executives present. Facilitating appraisal of board CEO (the prime minister of the company) Execute the business plans determined by the board. Provide leadership to the business, ensuring the effectiveness of business operations and leading the process of setting strategy. Communicating effectively with significant stakeholders. Cooperate in induction and development, especially of NEDs and senior management staff Cooperate by providing any necessary resources. Cooperate in appraisal of board members. Often conducts the appraisal meeting of other executive directors. Cooperate with all the members of
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ExPedite Notes
members. Generally required to conduct the appraisal of the CEO each year. Encouraging active engagement by all the members of the board. Ensure NEDs are properly chosen, trained on induction and appraised. Ensure that all directors continuing professional development is up-todate.
the board.
It is a core principle of many corporate governance codes that the chairman and CEO should be different people.
KEY KNOWLEDGE Key Board Committees
Audit committee
Liaises with external auditor, is the point of reference for the internal auditor. Reviews the financial statements and in smaller entities probably also does the tasks of the risk management committee. Comprises mostly non-executive directors.
Remuneration committee
Responsible for advising on executive director remuneration, probably through external benchmarking. Determines the "cocktail" of remuneration types for executive driectors. Comprises only nonexecutive directors.
Risk committee Oversees risk management. Responsible for embedding risk awareness in culture. Risk manager reports to this committee. In smaller entities, possibly part of audit committee. Comprises mostly non-executives.
Nominations committee Recommends appointments to the board. Legally, shareholders appoint directors, but almost always follow board recommendations. Comprises only non-executive directors.
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ExPedite Notes
KEY KNOWLEDGE Role of Non-Executive Directors

This is an important issue and a frequently occurring exam topic. A criticism made of nonexecutive directors in the past is that they have been either symbolic only and contributing very little, or have become so involved in the companys affairs that they are effectively executive directors. This may be a difficult balance to strike. The board including some non-executive directors is required by almost all corporate governance codes. Their role was clarified by the Tyson Report (UK). Non-executive directors have no executive (ie day-to-day management) responsibilities. Executive directors are generally director of finance, director of HR (or some other stated area of operational responsibility). Non-executive directors never have any specific portfolio of responsibilities, other than the chairmans responsibilities. have a key role in reducing conflicts of interest between management and shareholders share the same legal duties and potential liabilities as full executive directors. This enhances their responsibility and accountability, even though they are part-time. bring independent viewpoint as they are not full time employees. They are often called independent directors as a result.
The role includes four principal areas of responsibility: People. They are responsible (perhaps via board committees) for selection, remuneration and assessment of directors. Internal control and risk awareness. They will normally lead the companys efforts to ensure that data about risks is properly obtained, collated, assessed and action taken upon it. Strategy. They contribute to strategy determination, mostly through an external viewpoint and by challenging the executive directors decision making. Their external experience is often useful. Scrutiny. They scrutinise the performance of management in meeting goals and objectives and monitor it. Their role of scrutiny is such that their job is mostly to challenge how decisions are made, rather than to make the decisions themselves.
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ExPedite Notes
KEY KNOWLEDGE Unitary v Multi-tier Board

A unitary board is one where all directors, both executive and non-executive, participate in the same board meeting. A multi-tier board often has a separate supervisory board. Advantages of a unitary board structure (disadvantages of a multi-tier structure) include: All participants have equal legal responsibility for management of the company and strategic performance. A single board promotes easier co-operation and co-ordination. The presence of NEDs should lead to better decisions being made. Independent NEDs are less likely to be excluded from decision-making and given restricted access to information.
Drawbacks of a unitary board structure (advantages of a muti-tier structure) include: A NED or independent director cannot be expected to both manage and monitor. The time requirements on non-executive directors may be onerous, meaning that only weaker quality non-executive directors are willing to accept the role. There is no specific provision for employees to be represented on the management board (this is common in countries where multi-tier boards are common) Emphasises the divide between the shareholders and the directors, as the supervisory board is another layer between management and the shareholders.
KEY KNOWLEDGE Directors Remuneration

Directors pay is set by the remuneration committee, which is made up entirely of nonexecutive directors. The aim is to pay a high enough amount to attract and retain the directors who have the greatest potential to add value to the business. Directors salaries are an agency cost that should be minimised as far as possible, of course. It is necessary for the remuneration committee to incentivise directors in a way that will align their wishes with those of shareholders. Shareholders are likely to want the following, some of which pull in opposite directions!
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ExPedite Notes
To take a level of risk that aligns with their own risk appetite (see notes below) and discourage directors from taking excessive levels of risk with shareholders money. Encourage directors to take a longer-term view of the business Maximise current year earnings, subject to not disregarding the need to have some view on the longer-term.
Note that if a stock market is acting rationally (or efficiently) then excessive risk taking that adds only a small amount to earnings should result in a drop in the companys share price. So if the directors are paid only a commission based on current year profits, they will have an incentive to take excessive risks with company assets. Its relevant also to remember that directors often change jobs every three to five years, so its necessary to give them some incentive not to manage the companys performance only to that time horizon. In order to ensure that directors have a form of balanced scorecard with which to make decisions, the remuneration committee will normally put together a cocktail of different elements of remuneration to align shareholders and directors interests. These may include: Basic salary Benefits-in-kind (BIKs) such as company cars and other short-term perks Pensions payable after retirement Share options, which are likely to have a lock-in vesting period and be dated over a range of dates into the medium- and long-term Shares in the company itself Bonus linked to current year profit Discretionary bonuses based on year-end performance evaluation.
The relative mix within the remuneration package will hopefully align the directors incentives with the shareholders wishes. Basic salary and BIKs No effect Profit related pay No. Profits will increase with greater risks Options and shares Yes. Excess risks will depress share price Pensions Yes. Very high risks could bankrupt the company and lose pension No effect Discretionary bonuses Could do, depending on how its awarded
Discourages excessive risk taking?
Encourages
No
Yes
Yes, though
Could do,
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current year profit maximisation Encourages longer-term view No No
not without regard to long-term effects Yes, especially if a range of exercise dates is given
depending on how its awarded Yes Could do, depending on how its awarded
KEY KNOWLEDGE Governance Disclosures

Most governance codes require disclosures concerning the following: Sustainability reporting Information about the board of directors An operating and financial review (OFR) Reports from the board committees. Details of relations with auditors including reasons for change. A statement that the directors have reviewed the effectiveness of internal controls. A statement of relations and dialogue with shareholders. A statement that the company is a going concern and the directors basis for concluding that the company is a going concern.
Possible exam relevance: These are best practice disclosures. They are a useful checklist for evaluating if a board is doing all that it reasonably can to ensure that its key stakeholders are kept informed.
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ExPedite Notes
KEY KNOWLEDGE Rules Based v Principles Based Corporate Governance

There are many different codes of corporate governance around the world. They may broadly be categorized as those that focus on principles (some of which have supporting rules) and those which are rules-based only with few or no overriding principles that companies must follow. In reality, companies in a principles based jurisdiction will develop their own policies and rules that must be followed. In a rules based approach, any noncompliance is likely to be legally challenged by looking at the intention behind the law. This means that there will always be some interaction between the two approaches. Principles based Key features Comply or explain approach. Investors then decide if any breaches are satisfactorily explained. Objectives stated, eg the CEO must not be able to gain excessive power and entities design their own specific procedures to enact the principle. Rules based Quasi-legal approach, with a series of specific rules that all entities must follow. Strict liability approach to compliance; non-compliance cannot be justified on grounds of compliance being not costbeneficial. Often legally enforced, eg via the USAs legal mechanisms and SFA for companies with shares traded in the USA. Sarbanes-Oxley Act (USA)
Examples
UK Combined Code 2006/ 2008 OECD guidance
Relative advantages
Allows commonsense judgment. Leaves stakeholders to assess if non-compliance with every rule is a problem or not. Allows flexibility between companies, so companies are addressing their own businessspecific risks. Lists of rules are unlikely to anticipate every possible situation. Wider, clear principles are less likely to have loopholes in regulation than detailed rules.
Clear and unambiguous. In an environment where directors are often criticized, its fairer to directors to give clear rules for them to follow. Clarity gives consistency of compliance between companies. Lack of exemption via comply or explain gives greater confidence in compliance.
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Rules-based compliance becomes a form of bureaucratic filling exercise. Principles based compliance requires companies to think and analyse their own risks. Prevents wastage of resources with heavy compliance costs for small risks. Requires compliance with the spirit of the law, rather than the minutiae of its wording.
Principles of the Combined Code 2008 Below are the main principles of the Combined Code 2008. Go through each of the principles stated below and in the right hand column, suggest ways how this objective might be achieved in your own company. Possible ways to achieve A: Directors A1: Every company should be headed by an effective board, which is collectively responsible for the success of the company. A2: There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the companys business. No one individual should have unfettered powers of decision. A3: The board should include a balance of executive and non-executive directors (and in particular independent nonexecutive directors) such that no individual or small group of individuals can dominate the boards decision taking. A4: There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. A5: The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All directors should receive
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induction on joining the board and should regularly update and refresh their skills and knowledge. A6: The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. A7: All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.
B: Remuneration B1: Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. B2: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration.
C: Accountability and audit C1: The board should present a balanced and understandable assessment of the companys position and prospects. C2: The board should maintain a sound system of internal control to safeguard shareholders investment and the companys assets. C3: The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for
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maintaining an appropriate relationship with the companys auditors.
D: Relations with shareholders D1: 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. D2: The board should use the AGM to communicate with investors and to encourage their participation.
E: Institutional shareholders E1: Institutional shareholders should enter into a dialogue with companies based on the mutual understanding of objectives. E2: When evaluating companies governance arrangements, particularly those relating to board structure and composition, institutional shareholders should give due weight to all relevant factors drawn to their attention.
E3: Institutional shareholders have a responsibility to make considered use of their votes.
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Thank you for downloading this extract from our ExPedite notes to accompany your free online Course

ACCA P1 Professional Accountant

Corporate Governance and Responsibility

START The Big Picture

ACCA P1 Professional Accountant

Integrity Quality decision making Judgement

Independence/ objectivity REPUTATION Honesty/ probity

Openness/ transparency Investor confidence Responsibility

ACCA P1 Professional Accountant

Openness/ transparency This is a default assumption that transparency is best.

KEY KNOWLEDGE Agency Theory and Costs

ACCA P1 Professional Accountant

KEY KNOWLEDGE Transaction Cost Theory

KEY KNOWLEDGE Stakeholders

ACCA P1 Professional Accountant

Affected by the business but only remotely or non-financially.

KEY KNOWLEDGE Mendelow Matrix

ACCA P1 Professional Accountant

Normative v Instrumental approaches to issues

ACCA P1 Professional Accountant

KEY KNOWLEDGE Pervasive Issues in Corporate Governance

Auditor relations Training Ethics

ACCA P1 Professional Accountant

Briefing Succession planning

KEY KNOWLEDGE How boards operate

ACCA P1 Professional Accountant

Under Combined Code 2008:

Under Combined Code 2008:

ACCA P1 Professional Accountant

Under Combined Code 2008:

Under Combined Code 2008:

Under Combined Code 2008:

ACCA P1 Professional Accountant

KEY KNOWLEDGE Roles of Chairman and CEO

ACCA P1 Professional Accountant

KEY KNOWLEDGE Key Board Committees

ACCA P1 Professional Accountant

KEY KNOWLEDGE Role of Non-Executive Directors

ACCA P1 Professional Accountant

KEY KNOWLEDGE Unitary v Multi-tier Board

KEY KNOWLEDGE Directors Remuneration

ACCA P1 Professional Accountant

Discourages excessive risk taking?

ACCA P1 Professional Accountant

current year profit maximisation Encourages longer-term view No No

KEY KNOWLEDGE Governance Disclosures

ACCA P1 Professional Accountant

KEY KNOWLEDGE Rules Based v Principles Based Corporate Governance

UK Combined Code 2006/ 2008 OECD guidance

ACCA P1 Professional Accountant

ACCA P1 Professional Accountant

ACCA P1 Professional Accountant

maintaining an appropriate relationship with the companys auditors.

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