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Syllabus B. Governance B3. Governance Scope And Approaches

The Major Areas Of Organisational Life

The major areas of organisational life

i. Duties of Directors &Functions of the Board

Duties of Directors are:

  1. to carry out their fiduciary duties to act in the best interest of the company

  2. to use their powers in the appropriate way grounded according to statute and case law

  3. to avoid conflicts of interests

  4. to exercise a duty of care.

ii. The composition and balance of the board (and board committees)

The balance of the board is very important to the success of the company. 

There are various ways boards can be made up from single tier, two or even three tier, but the board must be balanced in terms of skills, knowledge, experience, skills, and in some specialist areas gender and ethnicity also need to be considered.

iii. Relevance and reliability of corporate reporting and external auditing.

An important factor to investors are issues around financial reporting and external auditing, as they provide indicators to the importance of management accountability. 

Issues around reporting can be two fold:

  • Internal auditors may not wish to ask difficult questions as they are asking these questions to people who provide their employment.

  • External auditors may not wish to ask awkward questions as they do not want to lose the contract.

iv. Directors’ remuneration and rewards.

It has been reported in the media about ‘fat cat ‘salaries, and the abuse of the corporate world in paying these salaries. 

Strong corporate governance can help to stem these issues.

v. Responsibility of the board for risk management systems and internal control.

It is the boards responsibility to ensure that they meet regularly, and if they do not then they are failing to fulfil their responsibilities, and therefore are not in the position to manage risk appropriately. 

There needs to be robust reporting systems so that adequate systems are in place to measure and report risk.

vi. The rights and responsibilities of shareholders, including institutional investors

All shareholders, and investors have the right to all relevant material that may have an effect on their investment. 

They should also have the right to vote on any measures that affect the management and governance of the organisation.

vii. Corporate social responsibility and business ethics.

Corporate social responsibility and business ethics may not seem an important part of corporate governance, but it is. 

Inclusive corporate social responsibility can be a way to create solid business success, as the relationship between a company and its stakeholders become jointly beneficial.