Ethics and Corporate Governance Flashcards

Which of the following is a primary function of an audit committee in a listed company?

Answer: Overseeing the integrity of financial reporting and reviewing internal controls

The audit committee oversees financial reporting integrity, reviews internal controls, and manages the relationship with external and internal auditors.

A remuneration committee in a listed UK company is primarily responsible for:

Answer: Setting remuneration policy and packages for executive directors to attract, retain, and motivate them

The remuneration committee sets executive director remuneration policy and specific packages to ensure alignment with shareholder interests and avoid conflicts of interest.

Which corporate governance theory holds that managers act as trustworthy stewards of corporate assets and naturally align their interests with shareholders?

Answer: Stewardship theory

Stewardship theory holds that managers are intrinsically motivated to act in the best interests of the organisation and its owners, viewing themselves as stewards rather than self-interested agents.

What is the primary purpose of a nomination committee on a listed company board?

Answer: Leading the process for board appointments and succession planning

The nomination committee leads board appointment processes, evaluates board composition, and oversees succession planning to ensure the board has the right mix of skills and experience.

Under the UK Corporate Governance Code, which combination of roles should NOT be held by the same individual?

Answer: Chair and Chief Executive Officer

The UK Corporate Governance Code explicitly requires separation of the chair and CEO roles to avoid inappropriate concentration of power and ensure effective board accountability.

'Tunnelling' in the context of corporate governance refers to:

Answer: The transfer of assets or profits from a company to its controlling shareholders at the expense of minority shareholders

Tunnelling is the expropriation of minority shareholder value through the extraction of resources from a company by its controlling shareholders for personal gain.

In the context of UK corporate governance, institutional investors such as pension funds and insurance companies are significant because:

Answer: They hold large concentrated shareholdings and can exert significant influence over board accountability

Institutional investors hold large pooled investments and, through the UK Stewardship Code, are encouraged to engage actively with companies to promote good governance and long-term value creation.