ACCA SBL Governance Scope and Approaches Notes

Syllabus Recap: Governance Scope and Approaches

1. Role and Influence of Institutional Investors

   • Institutional investors (e.g., pension funds, insurance companies) hold significant shares, influencing governance through voting rights and engagement.
   • They promote accountability, transparency, and long-term value creation.
   • Application: Their influence ensures robust governance aligning with shareholder interests.

2. Rules vs. Principles-Based Governance

   • Rules-based governance relies on strict regulations, ensuring compliance but potentially lacking flexibility.
   • Principles-based governance focuses on ethical guidelines, allowing adaptability but risking ambiguity.
   • Application: Rules suit highly regulated environments; principles fit dynamic, value-driven organisations.

3. Models of Organisational Ownership

   • Family firms feature concentrated ownership, often prioritising legacy and control, with less formal governance.
   • Joint stock companies have dispersed ownership, requiring formal governance to align diverse shareholders.
   • Application: Ownership models shape governance structures and decision-making.

4. ICGN Global Governance Principles

   • ICGN principles emphasise board accountability, shareholder rights, transparency, and ethical conduct.
   • Application: Organisations apply these to enhance governance, ensuring stakeholder trust and compliance.

Application to Dearn Shoes Ltd

1. Role and Influence of Institutional Investors

   • Context: Dearn Shoes Ltd, a non-listed company, is majority-owned by the founder’s family, with no clear mention of institutional investors. Governance aligns with good practices but lacks audit, nomination, and remuneration committees.
   • Application:
     • If institutional investors were involved, they could push for committees to address declining market share (9.4% in 20X4) and X Co’s quality issues, enhancing oversight.
     • Their absence means family shareholders must drive accountability, potentially limiting external governance pressure.

2. Rules vs. Principles-Based Governance

   • Context: Dearn operates in Lucland with strong copyright, employment, and safety laws, suggesting a rules-based environment. Its governance, however, reflects principles-based alignment with values of quality and staff commitment.
   • Application:
     • Rules-Based: Suitable for ensuring compliance with Lucland’s health and safety tests on shoes, preventing legal risks.
     • Principles-Based: Appropriate for addressing ethical concerns with X Co’s Totland operations, allowing flexibility to align with customer demand for sustainable, Lucland-made shoes.

3. Models of Organisational Ownership

   • Context: Dearn is a family firm, with the founder’s family holding the majority of shares but no board involvement. Its hierarchical structure and risk-averse board contrast with joint stock companies’ formal governance.
   • Application:
     • Family Firm: Dearn’s family ownership prioritises legacy, supporting staff loyalty (8.2/10) but risking slow adaptation to online sales (12% of total).
     • Joint Stock Comparison: Adopting joint stock features, like independent directors, could enhance agility and address environmental risks, balancing family control with professional governance.

4. ICGN Global Governance Principles

   • Context: Dearn’s governance lacks formal committees, and issues like X Co’s poor labour standards and declining customer satisfaction (7.0/10) highlight governance gaps.
   • Application:
     • Board Accountability: Establish an audit committee to oversee X Co’s quality and ethical issues, aligning with ICGN’s oversight principle.
     • Transparency: Regular reporting to shareholders on sustainability efforts, like reshoring production, supports ICGN’s disclosure principle, rebuilding trust.