1. Corporate Governance Part 1

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Questions and Answers

What is a key characteristic of good corporate governance?

Encourages complex processes that are difficult to understand

Facilitates transparent systems that are sound and understandable (correct)

Increases inefficiency in business operations

Promotes short-term profit maximization

Which of the following benefits does good corporate governance provide?

Higher risk premiums for investors

Lower liquidity and share prices

Reduced access to capital markets

Increased lender and stakeholder confidence (correct)

What significant change occurred between 1998 and 2000 regarding capital market regulation?

The implementation of the first Code of Corporate Governance (correct)

An increase in the regulator's oversight authority

The removal of criminal sanctions for disclosure failures

A shift from a disclosure-based regime to a merit-based approach

Under Section 203 of the SFA, what is a consequence for failing to disclose required information?

A fine up to $250,000 and potential imprisonment Signup and view all the answers

What was the primary focus of the previous merit-based approach in regulating capital markets?

The regulator acting as a gatekeeper for market entry Signup and view all the answers

What consequences follow if failure to disclose is classified as only negligent?

Only civil penalties apply, with no criminal liability. Signup and view all the answers

Under Section 331 of the SFA, who is held personally accountable for breaches of disclosure rules?

Directors and officers involved are held personally accountable. Signup and view all the answers

What is required for an officer of a body corporate to be deemed guilty under Section 331?

Consent, connivance, or neglect associated with the corporate offense. Signup and view all the answers

What may happen to an officer found guilty under the disclosure-based regime?

They can be punished alongside the body corporate. Signup and view all the answers

What distinguishes a negligent failure to disclose from other types of misconduct?

It only incurs civil penalties as opposed to criminal charges. Signup and view all the answers

What is the primary purpose of corporate governance?

To enhance long-term shareholder value while considering stakeholders. Signup and view all the answers

Which principle is NOT part of the general principles of good corporate governance?

Secrecy Signup and view all the answers

Which entity is NOT typically involved in the corporate governance ecosystem?

Market analysts Signup and view all the answers

Who primarily directs and manages the affairs of a company?

The board of directors and management. Signup and view all the answers

Which of the following is an element of a disclosure-based regime?

Mandatory disclosure of relevant information to stakeholders. Signup and view all the answers

What aspect of corporate governance does 'sustainability' emphasize?

Balancing financial goals with social and environmental responsibilities. Signup and view all the answers

Which group is NOT considered a stakeholder in the corporate governance framework?

Shareholders only Signup and view all the answers

What is meant by accountability in corporate governance?

Making directors and executives answer for their actions and decisions. Signup and view all the answers

What is the primary responsibility of the board of directors in a company?

To ensure governance and set the strategic direction Signup and view all the answers

According to the UK Cadbury Committee, what should the business of a company be managed by?

The directors under their supervision Signup and view all the answers

What is one of the dual roles of the board of directors?

To ensure the company's strategic direction aligns with governance practices Signup and view all the answers

In the context of corporate governance, who represents the interests of shareholders?

The board of directors Signup and view all the answers

Why is regulatory conformance essential for the board of directors?

To ensure compliance with laws while aiming for company success Signup and view all the answers

What is the principal-agent problem in the context of corporate governance?

The misalignment of interests between the board and shareholders Signup and view all the answers

Which of the following is NOT a role of the Corporate Governance Advisory Committee (CGAC)?

Regulating corporate compliance Signup and view all the answers

What does the effectiveness of a board encompass?

Balancing conformance and performance Signup and view all the answers

Study Notes

What is Corporate Governance?

Defined as having the right people, processes and structures to direct and manage a company's business and affairs to enhance long-term shareholder value while considering the interests of other stakeholders

General Principles of Good Corporate Governance

Transparency
Accountability
Integrity
Fairness
Sustainability
Diversity
Capability
Leadership

The Corporate Governance Ecosystem

Regulators include: ACRA, MAS, SGX, other capacity builders
Companies include: Boards, Management, Company Secretary, Staff, Auditors
Stakeholders include: Shareholders, Lenders, Customers, Suppliers, Business Partners, Competitors, Credit Rating Agencies, Media, The Public, Advisors

Who is Responsible for Corporate Governance?

Corporate Governance Advisory Committee (CGAC) advises on corporate governance issues
ACRA regulates corporates and monitors good corporate governance practices
MAS advocates good corporate governance practices
SGX RegCo monitors and advocates good corporate governance practices
Boards of directors are responsible for governing their companies
Boards have a dual role of setting a company's strategy and setting its approach to governance

Why Corporate Governance?

Corporate governance seeks to align the interests of boards, shareholders, and other stakeholders through transparency and fairness
The Principal-Agent Problem highlights conflicts between the interests of a principal and their agent, often seen in companies where boards are the "agent" of shareholders and management are the "agent" of the board
Good corporate governance fosters sound, transparent, and understandable systems and processes
By encouraging sustainable profits, business continuity, and reducing business inefficiency, good corporate governance strengthens a company's overall performance

Benefits of Good Corporate Governance

Greater confidence from lenders, investors and stakeholders
Increased valuations, liquidity, and share prices
Easier access to capital
Increased entrepreneurial activity and foreign investment
Reduced risk premiums

Disclosure-based Regime

A shift away from a merit-based approach to a market-driven, disclosure-based regime in the capital markets of Singapore
This transition was marked by revisions to the Companies Act, Securities & Futures Act ("SFA"), and SGX Listing Manual, along with the issuance of the first Code of Corporate Governance
Section 203 of the SFA gives SGX's disclosure rules legal force and establishes criminal penalties for failure to disclose information
Any intentional, reckless, or negligent failure to notify SGX of required information under the Listing Rules can result in fines up to $250,000, imprisonment up to 7 years, or both
Negligence in disclosure results in civil penalties and liability, but not criminal consequences

Personal Accountability for Directors and Officers

Section 331 of the SFA holds directors and officers personally accountable for breaches of disclosure rules
This section states that any offense committed by a corporate entity with the consent, connivance, or neglect of an officer, both the officer and the entity can face legal consequences.

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Description

Explore the essential principles of corporate governance and its role in managing a company's affairs for long-term value. This quiz covers the ecosystem of corporate governance, the responsibilities of various stakeholders, and the regulations that ensure accountability and transparency.