Alternative Systems of Corporate Governance

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Questions and Answers

In the Two-Tier System, what is the primary responsibility of the Supervisory Board regarding financial statements?

They are responsible for generating and presenting the financial statements, with input from the Management Board.

They approve the financial statements after review by the Management Board. (correct)

They appoint the external auditors who are responsible for auditing the financial statements.

They directly audit the financial statements and ensure their accuracy.

What is the primary difference between the traditional system and the Two-Tier system?

The traditional system has a single board of directors with both management and oversight functions, while the Two-Tier system separates these into distinct boards. (correct)

The traditional system relies solely on external auditors for financial oversight, while the Two-Tier system incorporates a supervisory board.

The traditional system has a board of statutory auditors, while the One-Tier system lacks this board.

The traditional system is less common and only used for specific industries, while the Two-Tier and One-Tier systems are more widely applicable.

Which of the following statements about the Supervisory Board in the Two-Tier system is FALSE?

The Supervisory Board has the authority to remove members of the Management Board.

The Supervisory Board's members are chosen entirely through the annual shareholders' meeting. (correct)

The Supervisory Board can initiate corporate liability action against Management Board directors.

The Supervisory Board is responsible for appointing new members to the Management Board.

Under what circumstance is the Supervisory Board's removal of a Management Board director most likely to occur?

A director's involvement in illegal activities that harm the company. (B) Signup and view all the answers

How does the One-Tier system differ from the Two-Tier system in terms of oversight?

The One-Tier system has a board of directors that handles both management and oversight, while the Two-Tier system separates these functions. (B), The One-Tier system relies on a management control committee, while the Two-Tier system does not. (D) Signup and view all the answers

What is the minimum number of members required for a management control committee (MCC) in a public limited company (open company limited by shares)?

Three (D) Signup and view all the answers

Who can remove the members of the management control committee based on the provided information?

Both the board of directors and the shareholders' meeting (B) Signup and view all the answers

Which of these options is a function of the management control committee?

Supervising the company's organizational, administrative, and accounting system (C) Signup and view all the answers

What is the relationship between the management control committee (MCC) and the statutory auditors?

The MCC is responsible for appointing and overseeing the statutory auditors. (A) Signup and view all the answers

What criteria must be met by the directors who are eligible to be members of the management control committee in a listed company?

They must meet the professional and honorability requirements provided for the statutory auditors of the listed company. (C) Signup and view all the answers

Study Notes

Alternative Administration and Control Systems

Alternative administration and control systems include two-tier, traditional, and one-tier systems
Two-tier systems consist of a supervisory board and a management board
Traditional systems consist of an administrative body and a statutory board of auditors
One-tier systems consist of a board of directors and a management control committee
Companies must specify their chosen system in their bylaws

Two-Tier System

The management board handles director functions
Supervisory board functions are unique, combining internal control oversight with shareholder meeting responsibilities, including specific situations like audit responsibility
Supervisory board members are initially appointed by the company's founding documents, then by shareholders
Members must be professional, reputable, and independent of the company
Supervisory board tenures last for three financial years
Members can be removed by shareholders without cause
Board appointments and terminations must be publicly recorded

Supervisory Board Functions

Appointing and removing management board members
Approving financial statements and consolidated financial statements
Making resolutions on strategic transactions and the company's business plans

Management Board Functions

Adheres to standard board of director procedures (composition, appointment, removal & duration of the role)
Corporate liability actions are regulated differently for directors

One-Tier System

This system is characterized by the absence of a statutory audit board
Management is exercised by the board of directors
Control is exercised by the management control committee, which performs statutory auditor functions
Statutory audits are entrusted to an external auditor

Board of Directors

Traditional board of directors rules apply when compatible
One-third of the board members must meet independence requirements
In listed companies, independent directors are nominated by the minority throughout the voting mechanism

Management Control Committee (MCC) Functions

Acts as a board/statutory-auditor-like body
Oversees compliance with law and bylaws
Manages organizational and operational aspects accounting systems
Handles shareholder complaints
Attends shareholder and board meetings
Detailed information control systems for listed companies

Functioning Procedures

Includes aspects of meeting procedures and roles such as chairs, quorum, and validity of motions
Includes aspects of liability related to board activities

Appointment Procedures

The board of directors decides on the appropriate size of the management control committee, although there are minimum and maximum memberships for companies limited by shares
Committee members must be from the board/management team
The committee must have members with the professional qualifications specified for statutory auditors
There is a method for appointment in listed companies

Removal Procedures

The board may remove committee members, but shareholder votes are required for removing directors or management
Shareholders retain the power to remove board members

Replacement Procedures

Members of the management committee can be replaced by board members
If the board lacks eligible members, new members are added

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Description

This quiz explores different administrative and control systems in corporate governance, including two-tier, traditional, and one-tier structures. It examines the roles and responsibilities of boards in these systems, as well as the stipulations companies must follow in their bylaws. Test your understanding of these frameworks and their implications for management and oversight.