Page 16 - CIMA OCS Workbook February 2019 - Day 2 Suggested Solutions

CIMA FEBRUARY 2019 – OPERATIONAL CASE STUDY

EXERCISE TWO (CORPORATE GOVERNANCE)
Briefing Notes

Definition of corporate governance

Corporate governance is the means by which a company is operated and controlled. Companies
should be run well in the interests of a range of stakeholders (not just shareholders), including the
wider community. The UK and many other countries adopt a ‘principles-based’ corporate
governance regime, which leaves it to individual companies to decide how best they can adhere
to corporate governance principles. Other countries, such as the USA adopts a ‘rules based’
approach which is more prescriptive in how to comply with corporate governance requirements.
Both approaches seek to achieve the same objectives.
The key corporate governance principles are explained as follows:

1 – Leadership
A company should have effective leadership from a board of directors which has collective
responsibility for decision-making. Ideally, there should be a split of responsibilities between
chair of the board who is responsible for the smooth running and conduct of board meetings, and
the managing director who is the chief operating officer on a day-to-day basis.

Additionally, there should be both executive and non-executive directors. The latter provide an
robust and objective challenge to the operational directors in board meetings to ensure that their
strategies and policies are appropriate and effective.
Trigg Adventure may benefit from the appointment of a director to chair board meetings and the
appointment of one or more non-executive directors. These appointments would not need to be
full-time, but they may add value to the decision-making process within board meetings, as well
as demonstrate awareness of corporate governance issues.

2 – Effectiveness of the board of directors
The board should comprise of individuals who have an appropriate range of skills, expertise and
experience to ensure that it can discharge its responsibilities effectively. This includes appropriate
induction training for new board members, and they should have sufficient time and resources to
discharge their responsibilities.

Trigg Adventure may wish to have an induction session for any new directors appointed, along
with ensuring that meetings are held regularly (e.g. quarterly) and that minutes of such meetings
are taken and circulated to all board members.
3 – Accountability

The board should be accountable for its decisions which should be based upon a balanced and
objective assessment of the position and prospects of the company. This includes the
requirement to maintain sound risk management and internal control systems.

It may be appropriate for a current director to take on responsibility for risk managements and
perhaps maintain a risk register, along with notes of how those risks have been managed or
mitigated. The effectiveness of internal control systems should be subject to regular review. This
could be achieved, for example, by requesting an external firm of accountants to conduct a review
of our internal control systems and report its findings to the board. Care would need to be
exercised to ensure that any appointed firm is sufficiently independent of the external audit
reporting function.

72 KAPLAN PUBLISHING