Corporate Governance 1 - Introduction
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Questions and Answers

What did the Cadbury Committee report define as corporate governance?

  • A system by which companies are directed and controlled (correct)
  • A framework solely focused on legal compliance
  • A strategy for increasing shareholder dividends
  • A process of company expansion and growth

Which of the following is NOT one of the principles of good corporate governance?

  • Transparency
  • Profit Maximization (correct)
  • Integrity
  • Accountability

What is the primary focus of corporate governance according to the content?

  • Immediate shareholder value
  • Reduction of regulatory oversight
  • Maximization of market share
  • Long-term stakeholder interests (correct)

In the context of corporate governance, what does transparency encompass?

<p>Following the law and ensuring decisions are made openly (C)</p> Signup and view all the answers

Who is primarily responsible for the governance of a company?

<p>Boards of directors (B)</p> Signup and view all the answers

Which report is considered a landmark in the context of corporate governance in the UK?

<p>The Cadbury Committee Report (D)</p> Signup and view all the answers

Which aspect does the framework of corporate governance NOT directly address?

<p>Short-term profit strategies (A)</p> Signup and view all the answers

What is the primary function of the Copper Governance Advisory Committee?

<p>To monitor and improve copper governance quality. (D)</p> Signup and view all the answers

What do the governance responsibilities of a board primarily include?

<p>Conforming to regulatory demands while maintaining performance. (D)</p> Signup and view all the answers

According to Section 157A of the Companies Act, who has the primary role in corporate governance?

<p>The board of directors. (A)</p> Signup and view all the answers

What must the board of directors not overlook regarding the existence of companies?

<p>Companies exist to create value. (C)</p> Signup and view all the answers

What is viewed as an enabler of long-term value protection according to corporate governance principles?

<p>Good governance. (A)</p> Signup and view all the answers

What does the performance aspect of governance focus on for the board of directors?

<p>Efficient and productive use of company resources. (B)</p> Signup and view all the answers

What is one of the foundational principles of the court regarding the role of the board?

<p>The board is collectively responsible for long-term success. (B)</p> Signup and view all the answers

Which of the following is a pressing demand on the board of directors?

<p>Conforming to changing regulations. (C)</p> Signup and view all the answers

What aspect of governance may overshadow the board's focus on performance?

<p>The constant need for compliance. (D)</p> Signup and view all the answers

Why must the board also consider the needs of stakeholders?

<p>Creating value benefits both shareholders and stakeholders. (B)</p> Signup and view all the answers

What is a tangible benefit of good corporate governance for firms?

<p>Higher profits and firm value (A)</p> Signup and view all the answers

How does transparency in corporate governance impact entrepreneurial activity?

<p>It promotes enterprise by enhancing predictability. (B)</p> Signup and view all the answers

What is a consequence of opaque systems in corporate governance?

<p>Increased premium for capital access (C)</p> Signup and view all the answers

In what way does strong corporate governance affect foreign direct investment?

<p>It is an important factor for attracting investment. (A)</p> Signup and view all the answers

How can well governed companies benefit in terms of liability insurance?

<p>They potentially have lower liability insurance premiums. (D)</p> Signup and view all the answers

What does fairness in corporate governance primarily focus on?

<p>Equitable treatment of all shareholders (D)</p> Signup and view all the answers

Sustainability in corporate governance primarily considers which of the following aspects?

<p>Long-term effects on environment and society (A)</p> Signup and view all the answers

What is meant by diversity in the context of corporate governance?

<p>Inclusion of various viewpoints and groups (B)</p> Signup and view all the answers

Capability in corporate governance refers to which of the following?

<p>Placing the right people in suitable positions (A)</p> Signup and view all the answers

Which component of corporate governance is responsible for establishing regulations?

<p>Regulators (D)</p> Signup and view all the answers

Which of the following parties are directly involved in holding the board accountable?

<p>Shareholders and stakeholders (C)</p> Signup and view all the answers

What is the role of capacity builders within the corporate governance ecosystem?

<p>To seek and foster better governance practices (B)</p> Signup and view all the answers

What is one of the responsibilities of the Corporate Governance Advisory Committee?

<p>To provide input on improving governance practices (D)</p> Signup and view all the answers

Leadership in corporate governance is focused on which aspect?

<p>Setting a tone for ethical behavior and direction (A)</p> Signup and view all the answers

What is the primary focus of effective corporate governance?

<p>Balancing interests of shareholders and other stakeholders (A)</p> Signup and view all the answers

What does the principal-agent problem primarily highlight?

<p>The separation of ownership and control (B)</p> Signup and view all the answers

What role do incentives and disincentives play in corporate governance?

<p>To redirect and realign the behaviors of the principal and agent (D)</p> Signup and view all the answers

Why is there a need for a sound legal and regulatory framework in corporate governance?

<p>To provide a reliable environment for market participants (D)</p> Signup and view all the answers

What is NOT a characteristic of good corporate governance?

<p>Focus solely on maximizing shareholder profits (A)</p> Signup and view all the answers

In the context of corporate governance, who is considered the agent of shareholders?

<p>The board of directors (C)</p> Signup and view all the answers

What is one possible consequence of good corporate governance on company valuation?

<p>Increased share price and volume (C)</p> Signup and view all the answers

How do regulators in Singapore aim to promote corporate governance?

<p>By striking a balance between hard and soft regulatory elements (A)</p> Signup and view all the answers

Which of the following issues relates directly to ethical dilemmas in corporate governance?

<p>Conflicts between the interests of the principal and the agent (D)</p> Signup and view all the answers

What is a major challenge faced by regulators regarding corporate governance?

<p>Maintaining the right balance of regulatory pressures (C)</p> Signup and view all the answers

Flashcards

Corporate Governance

A system for directing and controlling companies, involving people, processes, and structures that drive behavior, aligned interests, and impose checks and balances.

Cadbury Committee

A UK committee that issued a report in 1992 defining corporate governance and setting the stage for governance codes in the UK and internationally.

Principles of Good Corporate Governance

Fundamental guidelines that companies must follow to achieve proper oversight and management.

Transparency

Openly disclosing information and following the law to ensure decisions are clear and understandable.

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Accountability

Taking responsibility for actions and decisions, especially to shareholders and stakeholders.

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Disclosure-based Regime

A system emphasising transparency and openness in reporting and financial information.

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Stakeholder Value

The consideration of the interests of all parties involved with the company (e.g. customers, employees, suppliers)

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Fairness

Being fair and balanced in treating all shareholders.

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Sustainability

Considering business impact on the environment, workers, and society.

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Diversity

Ensuring different viewpoints, ideas, and groups are represented.

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Groupthink

Avoiding conformity of thought.

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Capability

Having the right people in the right positions.

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Leadership

Setting the tone for the entire company.

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Regulators

Oversees business environment and rules.

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Board of Directors

Management supported by the company secretary and auditors.

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Corporate Governance Advisory Committee

Body established for governance advice.

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Governance Advisory Committee

A body that advises regulators on corporate governance practices in Singapore, monitors quality, identifies improvements, and recommends code updates.

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Board of Directors' Role

The board is primarily responsible for company governance, ensuring efficient resource use, performance and conformance to regulations while creating value for shareholders.

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Performance in Governance

This refers to using company resources efficiently and productively, to benefit investors and stakeholders. It ensures sustainable company performance.

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Conformance in Governance

Ensuring the company complies with all applicable regulations, rules, and guidelines.

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Value Creation

The primary objective of a company is to create value for its shareholders and stakeholders, not just conform to rules.

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Board's Responsibility for Success

The board is collectively responsible for the long-term success of the company, working with management to ensure sustainable performance.

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Good Governance as an Enabler

Good governance facilitates not just value protection, but also value creation and enhancement for all stakeholders.

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Governance and Sustainability

Sustainable company performance is a core element of good governance, ensuring long-term value creation and benefitting all stakeholders.

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Board's Role in Performance and Conformance

The board balances ensuring the company is both performing well and complying with regulations, creating value while staying within legal bounds.

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SGX's Role in Enforcement

The Singapore Exchange (SGX) enforces regulations and ensures compliance with corporate governance standards.

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Tangible Benefit of Good Governance

Good corporate governance should provide clear, measurable advantages beyond just theoretical ideas. This means increased firm value, higher profits, and greater sales.

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Investor Premium for Strong Boards

Investors are willing to pay more for companies in emerging markets that have strong boards of directors, demonstrating the value of effective governance.

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Good Governance & Access to Capital

Good corporate governance makes it easier for companies to access funding because it reduces risk and complexity for lenders. Transparent systems build trust.

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Good Governance & Entrepreneurship

Good governance encourages entrepreneurial activity by providing a predictable business environment. This fosters confidence and growth.

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Lower Risk Premiums

Well-governed companies experience reduced risk premiums on their debt and equity, leading to lower insurance costs. This signifies trust and stability.

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Correlation between good corporate governance and company performance

Academic studies frequently show a strong connection between effective corporate governance and successful company performance.

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Safeguarding shareholder and stakeholder interests

A main goal of corporate governance is to protect the rights and interests of all stakeholders involved, including investors, customers, and employees.

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Balance between hard and soft regulations

Effective corporate governance requires finding the right balance between strict rules and more flexible guidelines to encourage ethical behavior without stifling businesses.

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Principal-Agent Problem

This concept arises when a principal (e.g., shareholders) delegates tasks to an agent (e.g., managers) and their interests may conflict.

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Agent representing the principal's best interest

In agency theory, agents are expected to act in the best interests of the principal, even if it means sacrificing their own interests.

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Conflicting interests between principal and agent

When the goals of the principal and agent don't align, ethical dilemmas can arise, complicating decision-making.

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Incentives and disincentives in corporate governance

Rewarding ethical behavior and penalizing unethical actions are crucial for aligning the interests of both principals and agents.

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Board's role as agent of shareholders

The board of directors acts as an intermediary between the shareholders and the company's management, ensuring the interests of investors are represented.

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Sustainable corporate practices

Good corporate governance encompasses environmentally and socially responsible practices that minimize negative impacts on the environment, workers, and communities.

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Impact of good corporate governance on stakeholders

Effective governance fosters greater trust and confidence among lenders, investors, stakeholders, employees, and customers, leading to increased valuations, liquidity, and market performance.

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Study Notes

Corporate Governance

  • Corporate governance is a system for directing and controlling companies.
  • The Cadbury Committee report (1992) defined corporate governance as a system by which companies are directed and controlled.
  • Boards of directors are responsible for corporate governance of their companies.
  • Corporate governance involves people, processes and structures that drive behavior
  • Corporate governance focuses on long-term interests of all stakeholders, although shareholder value is also recognized.
  • Key principles include transparency (decisions made openly and with full disclosure), accountability, integrity (reputation is valued), fairness, sustainability (long-term view, environmental impact, workers, and society), diversity, capability, and leadership.
  • A corporate governance ecosystem includes regulators, board management, company secretaries, auditors, shareholders, and stakeholders.
  • Corporate governance is essential for the long-term success of companies and a sound legal and regulatory framework is necessary in the market.
  • Corporate governance leads to increased valuations, liquidity, and share price/volume. Investors are looking for good governance practices in companies to invest.
  • The disclosure based regime is a market driven regime.

Disclosure-based regime

  • Section 203 SFA (Securities and Futures Act) is the key piece of legislation for disclosure rules under SGX.
  • Listing rules by themselves are a contract between SGX and listed companies
  • Failure to disclose information according to the listing regulations is a possible criminal offence with fines, imprisonment, or both
  • s199 SFA deals with false or misleading statements, applicable to all listed companies
  • Directors and officers are personally accountable for breaches of disclosure rules in s331 SFA
  • Disclosure requirements are detailed in the Listing Manuals.

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Corporate Governance 1 - Introduction PDF

Description

This quiz explores the fundamentals of corporate governance, including its definition, key principles, and the roles of various stakeholders. Gain insights into the importance of transparency, accountability, and sustainability within corporate structures. Understand how these elements contribute to the long-term success of companies.

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