CCP 1: Understanding Corporate Governance Principles

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson
Download our mobile app to listen on the go
Get App

Questions and Answers

Which of the following best encapsulates the concept of corporate governance?

  • Establishing appropriate structures and processes to direct and manage a company to enhance long-term shareholder value while considering stakeholder interests. (correct)
  • Centralizing decision-making within a small group of executives to ensure efficiency.
  • Maximizing short-term profits regardless of ethical considerations.
  • Strict adherence to legal compliance, even if it hinders innovation.

Transparency in corporate governance solely refers to the disclosure of financial information to shareholders.

False (B)

How does prioritizing sustainability contribute to long-term corporate success?

Enhances reputation, attracts investments, reduces risks, ensures compliance, fosters innovation.

According to the Singapore Code of Corporate Governance, the board has the dual role of setting strategic direction and setting the company's approach to ______.

<p>governance</p> Signup and view all the answers

Which of the following is NOT typically considered a key stakeholder in corporate governance?

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

Corporate governance is primarily the responsibility of external regulators, rather than the company's own board of directors.

<p>False (B)</p> Signup and view all the answers

Briefly explain why 'tone at the top' is vital for effective corporate governance.

<p>Sets ethical culture, influences behavior, promotes compliance, fosters trust, ensures accountability.</p> Signup and view all the answers

According to agency theory, problems arise when the interests of the principal and the ______ are in conflict.

<p>agent</p> Signup and view all the answers

Which of the following actions is most indicative of a company prioritizing accountability in its corporate governance?

<p>Implementing a whistleblower policy to encourage reporting of misconduct. (B)</p> Signup and view all the answers

Good corporate governance guarantees that a company will never face financial difficulties or ethical lapses.

<p>False (B)</p> Signup and view all the answers

How can a lack of diversity on a board of directors negatively affect corporate governance?

<p>Limits perspectives, hinders innovation, reduces adaptability, reinforces biases, impairs decision-making.</p> Signup and view all the answers

In Singapore's disclosure-based regime, Section ______ of the Securities and Futures Act (SFA) provides for personal accountability of directors and officers.

<p>331</p> Signup and view all the answers

What is the potential consequence for failing to notify the SGX of required information intentionally, according to Section 203 of the SFA?

<p>A fine not exceeding $250,000 or imprisonment not exceeding 7 years, or both. (C)</p> Signup and view all the answers

Under Section 203 of the SFA, any failure to notify the SGX of any required information will result in criminal consequences, regardless of intent.

<p>False (B)</p> Signup and view all the answers

Explain how a disclosure-based regime differs from a merit-based approach in regulating capital markets.

<p>Disclosure emphasizes transparency, market-driven decisions, while merit-based relies on regulator approval.</p> Signup and view all the answers

According to Section 157A of the Companies Act, the business of a company should be managed by, or under the direction or supervision of, the ______.

<p>directors</p> Signup and view all the answers

Which of the following statements best reflects the role of the Corporate Governance Advisory Committee (CGAC)?

<p>To advise on corporate governance issues and advocate for good practices. (B)</p> Signup and view all the answers

Cheaper access to capital as a result of good corporate governance means corporations do not have to pay interest on loans.

<p>False (B)</p> Signup and view all the answers

Identify three ways a company can demonstrate its commitment to transparency in corporate governance.

<p>Regular reporting, independent audits, open communication, stakeholder engagement, ethical code, whistleblower program.</p> Signup and view all the answers

Boards of directors are responsible for the ______ of their companies, as stated in the UK Cadbury Committee Report on Corporate Governance (1992).

<p>governance</p> Signup and view all the answers

If an officer of a body corporate commits an offense with the consent of a director, according to Section 331 of the SFA, what is the likely consequence for the director?

<p>The director, along with the body corporate and the officer, will be guilty of the offense. (B)</p> Signup and view all the answers

The first Code of Corporate Governance in Singapore was established before the Securities and Futures Act ('SFA') was enacted.

<p>False (B)</p> Signup and view all the answers

What is one way good corporate governance can reduce business inefficiency?

<p>Streamlining processes, enhancing control, preventing waste, improving resource allocation.</p> Signup and view all the answers

Corporate governance seeks to align the interests of the board, shareholders, and other stakeholders in a ______ and fair way.

<p>transparent</p> Signup and view all the answers

Which is the least accurate description of 'the agent' used in agency theory?

<p>The agent must always benefit at the equal expense of stakeholders. (C)</p> Signup and view all the answers

In companies, the board is the agent of the management, while management is the agent of the shareholders.

<p>False (B)</p> Signup and view all the answers

Why are business associations considered to be capacity builders?

<p>Disseminate information, provide training, foster collaboration, promote best practices, enhancing skills.</p> Signup and view all the answers

Boards & Directors can be considered to be ______ in The Corporate Governance Ecosystem.

<p>regulators</p> Signup and view all the answers

Match the following terms with their descriptions:

<p>Transparency = To be consistently open, honest and accountable. Sustainability = Being able to be maintained at a certain rate or level. Integrity = The quality of being honest and having strong moral principles. Fairness = Impartial and just treatment or behavior without favoritism or discrimination.</p> Signup and view all the answers

Which is the least accurate description of capacity builders?

<p>They are comprised of trade bodies, regulators and professional bodies. (D)</p> Signup and view all the answers

Diversity as one of the General Principles of Good Corporate Governance could not involve the diversity of thought; it is concerned with ethic and gender diversity only.

<p>False (B)</p> Signup and view all the answers

According to Introduction to Singapore Code of Corporate Governance (2018), which role is described as the dual role of setting strategic direction and of setting the company's approach to governance?

<p>the Board</p> Signup and view all the answers

The Trade Bodies in the Capacity Builders are considered to be ______.

<p>stakeholders</p> Signup and view all the answers

Match the following organisations with their role in the Corporate Governance Ecosystem:

<p>ACRA = Regulates regulatory boards such as SGX MAS = Singapore's central bank, and a key regulator SGX = Singapore Exchange CGAC = Corporate Governance Advisory Committee</p> Signup and view all the answers

If a company promotes business continuity, which statement accurately describes it?

<p>The company maintains operation even after an impactful event occurs. (B)</p> Signup and view all the answers

If a company makes sustainable profits over the longer-term, there is no need for investors to reduce risks premiums.

<p>False (B)</p> Signup and view all the answers

Describe a circumstance which promotes greater lender, investor and stakeholder confidence.

<p>Transparency, accountability, regulatory conformance, clear communication, ethical leadership, risk management policies.</p> Signup and view all the answers

Previously, Singapore made use of a method, where the regulator was the gate-keeper and this was termed to be ______.

<p>merit-based</p> Signup and view all the answers

Match the stakeholder group, with what they may believe is their top criteria:

<p>Shareholders = Enhanced long-term shareholder value. Customers = High-quality products at a good price. Lenders = The loan is serviced correctly and can be paid back. Business Partners = Business operations are stable and are unlikely to change.</p> Signup and view all the answers

Flashcards

Corporate Governance Definition

Having appropriate people, processes, and structures to manage a company, enhancing long-term shareholder value while considering other stakeholders.

Principles of Good Corporate Governance

Essential elements include transparency, accountability, integrity, fairness, sustainability, diversity, capability, and leadership.

Who is responsible for Corporate Governance?

ACRA, MAS, SGX RegCo, Companies, Boards of Directors and the Corporate Governance Advisory Committee (CGAC).

Directors' Role

The business of a company should be managed by, or under the direction or supervision of, the directors.

Signup and view all the flashcards

Dual Role of the Board

The board has a dual role of conformance and performance to ensure value creation and regulatory compliance.

Signup and view all the flashcards

Principal-Agent Problem

Arises when an agent (like management) might not always act in the best interests of the principal (shareholders).

Signup and view all the flashcards

Purpose of Corporate Governance

Corporate governance aligns interests of board, shareholders, and stakeholders in a transparent, fair way.

Signup and view all the flashcards

Good Corporate Governance

Corporate governance encourages systems and processes that are sound, transparent and understandable.

Signup and view all the flashcards

Shift in Regulatory Approach

Moved from merit-based regulation to a market-driven, disclosure-based approach between 1998-2000.

Signup and view all the flashcards

Section 203 of the SFA

Section 203 of the Securities and Futures Act gives disclosure rules force of law, with sanctions for failures to disclose.

Signup and view all the flashcards

Failure to Disclose: Negligence

If failure to disclose is only negligent, there are no criminal consequences, only civil penalty and liability

Signup and view all the flashcards

Section 331 of the SFA

Section 331 of the SFA provides for accountability of directors/officers by creating personal liability for breaches of disclosure rules.

Signup and view all the flashcards

Study Notes

Corporate Governance Definition

  • It involves having the right people, processes, and structures in place.
  • It aims to manage the business and affairs of a company.
  • It enhances long-term shareholder value.
  • Corporate governance takes into account the interests of other stakeholders.

General Principles of Good Corporate Governance

  • Transparency ensures openness and clarity in company dealings.
  • Accountability ensures responsibility for actions and decisions.
  • Integrity ensures honesty and ethical behavior.
  • Fairness ensures equitable treatment of all stakeholders.
  • Sustainability ensures long-term viability and responsible practices.
  • Diversity promotes inclusion and varied perspectives.
  • Capability ensures competence and skills within the organization.
  • Leadership guides the company effectively.

Corporate Governance Ecosystem

  • Regulators are ACRA, MAS, and SGX.
  • Capacity builders include trade bodies, business associations and professional bodies.
  • Companies include the management & staff.
  • Company secretaries & auditors are included.
  • Analysts, stockbrokers, the media, and the public are considered relevant.
  • Other stakeholders include lenders, customers, suppliers, business partners, competitors, credit rating agencies, and advisors.

Responsibility for Corporate Governance

  • The Corporate Governance Advisory Committee (CGAC) advises on corporate governance issues.
  • ACRA, MAS, and SGX RegCo regulate corporate governance.
  • Corporate entities monitor and advocate for good governance practices.
  • The business of a company is managed by, or under the direction or supervision of, the directors, according to Section 157A of the Companies Act.
  • Boards of directors are responsible for the governance of their companies - UK Cadbury Committee Report on Corporate Governance (1992).
  • The Board sets strategic direction and the company's approach to governance - Singapore Code of Corporate Governance (2018).
  • Board effectiveness involves both conformance and performance.
  • Companies exist to create value and have their own strategy to deliver its value proposition.
  • Regulatory conformance means compliance with laws and regulations.
  • The board should not be distracted from its role to ensure success for the company.

The Principal-Agent Problem

  • Agency theory involves an agent representing a principal in business.
  • The agent is expected to advance the principal's interests.
  • Problems arise when the interests of the principal and agent are in conflict.
  • The Board is viewed as the "agent" of shareholders.
  • Management is the "agent" of the board in companies.
  • Corporate governance aims to align the interests of the board, shareholders, and other stakeholders in a transparent and fair manner.

Benefits of Good Corporate Governance

  • Promotes systems and processes that are sound, transparent, and understandable.
  • Supports a company in making sustainable profits over the longer term.
  • Promotes business continuity.
  • Reduces business inefficiency.
  • Increases lender, investor, and stakeholder confidence.
  • Results in increased valuations, liquidity, and share prices.
  • Provides cheaper access to capital.
  • Encourages entrepreneurial activity and foreign investment.
  • Reduces risks premiums.

Disclosure-Based Regime

  • Previously, a merit-based approach regulated the capital markets in Singapore, with the regulator acting as the gatekeeper.
  • A market-driven, disclosure-based regime of supervision was introduced between 1998 and 2000.
  • Changes were made to the Companies Act, the Securities & Futures Act (SFA), and the SGX Listing Manual.
  • The first Code of Corporate Governance was issued.
  • Section 203 of the SFA gives the disclosure rules of the SGX the force of law
  • It provides for criminal sanctions for failures to disclose.
  • Under Section 203, any failure to notify the SGX of required information, done intentionally, recklessly, or negligently, can lead to liability.
  • Conviction can result in a fine not exceeding $250,000 or imprisonment not exceeding 7 years, or both.
  • Negligent failure to disclose results in civil penalties and liability only, without criminal consequences.
  • Section 331 of the SFA ensures personal accountability of directors and officers.
  • It creates personal liability for breaches of disclosure rules.
  • If an offense is committed by a body corporate with the consent, connivance, or neglect of any officer, that officer is also guilty and liable.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser