Page 15 - OCS Workbook - Day 2 Suggested Solutions (May 2018)
P. 15

SUGGESTED SOLUTIONS


                  CHAPTER TEN


                  EXERCISE ONE (CORPORATE GOVERNANCE)


                  From:  Finance Officer.
                  To:  Gwen Giovanni, Finance Manager
                  Subject:  Corporate Governance

                  Hi.

                  Thank you for your email.  I have considered your email and have made some notes regarding
                  the purpose of, key features of and available approaches to corporate governance.

                  Purpose of corporate governance

                  The main purpose of corporate governance is to provide reassurance and protection to
                  shareholders about giving them more information and more transparency about the entity and
                  their operations.  Corporate governance provides methods in which to ensure the entity is run in
                  the best interests of the shareholders and wider stakeholder group.

                  Corporate governance provides  guidance on matters such as:

                      •    the responsibilities of directors
                      •    the appropriate composition of the board of directors
                      •    the necessity for good internal control
                      •    the necessity for an audit committee
                      •    relationship with the external auditors

                  Corporate governance is of particular importance to publically traded entities as some listing
                  requirements insist of compliance.  This is due to the large amounts of money that are invested
                  in listed entities.  Although there are no requirements in Lowerland for listed companies to
                  adopt a code of corporate governance it would certainly be recommended for Mansako to do so,
                  particularly in light of the recent media scandal.

                  Approaches to corporate governance

                  There are two main approaches to corporate governance.

                      •    The rules-based approach – used in the US
                      •    The principles-based approach – used in the UK

                  The rules-based approach has the code instilled into law and so non-compliance with be a legal
                  offense and will come with appropriate penalties and legal implications.  In the US this model is
                  enshrined into law by virtue of Sarbanes Oxley Act.

                  The principles-based approach is not instilled in law and rather this approach simply requires
                  that organisations adhere to the spirit of the code rather than to the letter of the code.





                  KAPLAN PUBLISHING                                                                    71
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