Do markets have a DNA

I was reading the news article “Former banking bosses say ‘sorry’ ” on the BBC website.

On being pushed by the Treasury committee, Lord Stevenson, former chairman of HBOS, said the mistake the bank made was a failure to predict the credit crunch, which effectively froze access to new funds.

“The fundamental mistake of HBOS was the failure to predict the wholesale collapse of the wholesale markets,” he said.

Till now I have been reading of credit crunch and recession in the economy.

Where’s the money gone ?

I can relate the credit crunch chain of events to the Oyster Card system in London Underground when it fails due to a technical problem. It results in total chaos . There is no ticket checks since the system has failed and the gates where the card reader is installed kept open. Then there is no difference between passengers with tickets or without tickets and everyone takes a free ride.

I occasionally watch Jeremy Kylie show or Maury Show. The have gradually moved from lie detector to a DNA test to determine the truth. Today DNA test is a precise way to determine the paternity, solve crime and also trace the roots of the family.

What about the markets ? Is there no way trace the money where it has disappeared !!!

Mr Hornby conceded to the the Treasury Committee that the culture, where bankers can receive many times their salary in cash bonuses, did need to be looked at.

“The bonus system has proved to be wrong. Substantial cash bonuses do not reward the right kind of behaviour,” he said.

What has happened to the Corporate Governance Standard where there the remuneration committee decides on the pay of executive directors ? Who pays the price for the excessive risk that the executives take for the bank ?

The most appalling case is that of Satyam Computers where the Auditors (Big 4 firm) failed to notice the Cash balances on the Balance Sheet of Satyam does not exist in the bank accounts.

In all the cases, these are best of banks or auditors !!!

The questions I would like to ask:

• Is the current laws and regulators geared to determine the source of the problem ?
• Do we require techniques and technology for the market as sophisticated as DNA Tests.

Please share your thoughts on the subject and whether you are affected by the credit crunch.

Regards,

Santosh Puthran

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Limited Liability Partnership – What it is ?

With the growth of the Indian economy, the role played by its entrepreneurs as well as its technical and professional manpower has been acknowledged internationally. The traditional partnership of entrepreneurship, knowledge and risk capital combine to provide a further impetus to India’s economic growth. However, a need has been felt for a new corporate form that would provide an alternative to this effect with unlimited personal liability on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in flexible, innovative and efficient manner.

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The Ministry of Company Affairs has notified the concept paper on Limited Liability Partnership (LLP) inviting public comments. The main purpose of this Concept Paper is to create a basic framework, which will facilitate the creation of a new legal entity in India viz. the limited liability partnership (“LLP”). The essential feature of an LLP is that it combines the organisational flexibility and tax status of a partnership with limited liability for its partners. An LLP is a body corporate having perpetual succession and separate legal entity.

Proposal in India

In India, a concept paper on Limited Liability Partnership Law was brought out by the Ministry of Company Affairs in 2005. In the year 2006 the Limited Liability Partnership Bill was introduced in the Parliament. In October 2008, the said Ministry has proposed a new Limited Liability Partnership Bill 2008, which has been submitted to the Parliament for its approval.

United Kingdom

In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in England and Wales) and the Limited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK Limited Liability Partnership is a Corporate body – that is to say, it has a continuing legal existence independent of its Members, as compared to a Partnership which may (in England and Wales they do not) have a legal existence dependent upon its Membership.

A UK LLP’s members have a collective (“Joint”) responsibility, to the extent that they may agree in an “LLP agreement”, but no individual (“several”) responsibility for each other’s actions. As with a limited company or a corporation Members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.

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Choosing name of the firm: The firm has to choose the name of the firm carefully since it would act as a brand and goodwill be created in the books. Read more.

United States

In the United States, each individual state has its own law governing their formation. Limited liability partnerships emerged in the early 1990s: while only two states allowed LLPs in 1992, over forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership Act in 1996.[7]

The limited liability partnership was formed in the aftermath of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks was small, efforts were made to recover assets from the lawyers and accountants that had advised the banks in the early-1980s. The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability [8]

Although found in many business fields, the LLP is an especially popular form of organization among professionals, particularly lawyers, accountants and architects. In some U.S. states, namely California, New York, Oregon and Nevada, LLPs can only be formed for such professional uses. Formation of an LLP typically requires filing certificates with the county and state offices. Although specific rules vary from state to state, all states have passed variations of the Revised Uniform Partnership Act.

The liability of the partners varies from state to state. Section 306(c) of the Revised Uniform Partnership Act (1997)(RUPA) (a standard statute adopted by a majority of the states) grants LLPs a form of limited liability similar to that of a corporation.

Sources and recommended reading:

1. Sarkaritel.com
2. Wikipedia
3. MoneyControl.com

Participate in discussion for LLP agreement on CMA India Portal.

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1. Ethical Decision Making
2. Task force emphasizes importance of CSR
3. Ethics on ACCA website 11-Feb-2008
4. Combined of Corporate Governance UK 20-April-08
5. 100 Most Influential People in Business Ethics 18-Feb-08
6. Professional Body 28-April-07
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9. Activity Based Management – Dispelling the myths Par I – 13-June-08
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11. Management Accountant Blog Home

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Task Force Emphasises importance of Corporate Social Responsibility

3rd Meeting of Indo-UK Task Force on Corporate Governance Conclude

A two-day meeting of the Indo-UK Task Force on Corporate Governance concluded here today. The Task Force was constituted in 2006 to promote bilateral collaboration between India and UK in areas of mutual interest in corporate matters, including corporate regulation and governance. UK was represented at this 3rd meeting of the Task Force by eight- member British delegation, led by Mr Geoffrey Stanley Dart, Director, Corporate Law and Governance, Department for Business, Enterprise and Regulatory Reform(BERR), Government of UK; while the Indian side was led by Shri Anurag Goel, Secretary, Ministry of Corporate Affairs, Government of India.

The discussions held by the Group covered various areas including the Limited Liability Partnership Bill, Private versus Public Enforcement of Good Governance in context of Shareholder Activism; and Practical aspects of IFRS implementation. The Task Force also discussed sharing of experience on economic crises and the role of various regulatory and professional institutions in meeting emerging challenges. Specific areas of discussions also on increasing Institution-to-Institution and business-to-business contacts between entities in UK and India. UK agreed to share its experiences on functioning of insolvency practitioners, their licensing, and forming joint intelligence committees. Insolvency Practitioners Association(IPA), UK will help the Society of Insolvency Practitioners in India by hand holding, training of trainers, joint projects and sensitization of creditors.

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The Task Force also emphasized the importance of Corporate Social Responsibility , i.e. CSR, and Corporate Governance in business value creation and sustainability. It was decided to take up a joint Research Project on “CSR as a contributory factor to sound business strategy”. The research will be funded by the Indian Institute of Corporate Affairs(IICA). ICSI and CASS Business School also agreed to work together on research, training and networking on CSR and corporate governance areas. ICSI would organize an international conference in UK in April 2009. Company Secretaries from India would participate and study UK systems and capacity building particularly in context of small and medium practitioners.

In addition to ICSI, ICAI, ICWAI, it was also agreed to expand regulator-to-regulator contact in field of Competition and Insolvency. IICA & NFCG would contribute as think tanks and knowledge managers in various initiatives. In pursuance of B2B contacts between the corporate of the two sides, Networking of Indian and UK firms will be facilitated for sharing of experiences, draw out best practices, improve standards, promote member to member contact.

Source: PIB Website

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1. Ethical Decision Making
2. Ethics on ACCA website 11-Feb-2008
3. Combined of Corporate Governance UK 20-April-08
4. 100 Most Influential People in Business Ethics 18-Feb-08
5. Professional Body 28-April-07
6. Resistance to Change 26-Apr-08
7. Business, Customer Value & Management Accounting 19-June-08
8. Activity Based Management – Dispelling the myths Par I – 13-June-08
9. How to Share Blog posts with friends 25-May-08
10. Management Accountant Blog Home

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Ethical Decision Making

Recently BBC uncovered in the report on Child Labour practices in India where suppliers of the clothes of high street retailer Primark had used child labour to finish the goods. Primark fired all the three firms involved. The question is about Ethics and Ethical values.

What is Ethics ?

Business ethics is the broadest of the three terms. It addresses the morality of both economic systems (e.g., the free market, socialism, communism) and the conduct of the organizations found within these systems (e.g., corporations in a free market system).

Corporate ethics may be viewed as a subset of business ethics. Corporate ethics focuses specifically on issues of morality associated with business enterprises. These include relations internal to the organization (e.g., treatment of employees, dealings with shareholders, questions concerning product quality and customer service, etc.) as well as external relations (e.g., interactions with government, specific communities, society as a whole, the impact of corporate activities on the natural environment, etc.).

Source: Hovefly

Ethical dilemmas

An ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another.

Eg.

• Trading with rogue governments can be seen as either contribution to the continuation of the regime or supporting economic growth that benefits all concerned
• If a foreign subsidiary of a company is operating in a country where it is legal to employ child labour, should the company take advantage of it ?
• Should you bribe to get your work done ? In some countries it is a common practice where it is referred as Suvidha or Baksheesh.

An article on on Santa Clara University explains  " A Framework on Ethical Decision Making"

Recognize an Ethical Issue

1. Is there something wrong personally, interpersonally, or socially? Could the conflict, the situation, or the decision be damaging to people or to the community?

2. Does the issue go beyond legal or institutional concerns? What does it do to people, who have dignity, rights, and hopes for a better life together?

Get the Facts

3. What are the relevant facts of the case? What facts are unknown?

4. What individuals and groups have an important stake in the outcome? Do some have a greater stake because they have a special need or because we have special obligations to them?

5. What are the options for acting? Have all the relevant persons and groups been consulted? If you showed your list of options to someone you respect, what would that person say?

Evaluate Alternative Actions From Various Ethical Perspectives

6. Which option will produce the most good and do the least harm?

Utilitarian Approach: The ethical action is the one that will produce the greatest balance of benefits over harms.

7. Even if not everyone gets all they want, will everyone’s rights and dignity still be respected?

Rights Approach: The ethical action is the one that most dutifully respects the rights of all affected.

8. Which option is fair to all stakeholders?

Fairness or Justice Approach: The ethical action is the one that treats people equally, or if unequally, that treats people proportionately and fairly.

9. Which option would help all participate more fully in the life we share as a family, community, society?

Common Good Approach: The ethical action is the one that contributes most to the achievement of a quality common life together.

10. Would you want to become the sort of person who acts this way (e.g., a person of courage or compassion)?

Virtue Approach: The ethical action is the one that embodies the habits and values of humans at their best.

Make a Decision and Test It

11. Considering all these perspectives, which of the options is the right or best thing to do?

12. If you told someone you respect why you chose this option, what would that person say? If you had to explain your decision on television, would you be comfortable doing so?

Act, Then Reflect on the Decision Later

13. Implement your decision. How did it turn out for all concerned? If you had it to do over again, what would you do differently?

If you as an Accountant are faced with Ethical dilemmas, apply the above principles. Further refer to your institute’s code of ethics. If you are still in doubt, then consult your Institute or Association.

I would like to hear your views on this subject for further discussion. You are welcome to comment on this blog post.

Regards,

 

Santosh Puthran

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You may also like to read

1. Ethics on ACCA website 11-Feb-2008
2. Combined of Corporate Governance UK 20-April-08
3. 100 Most Influential People in Business Ethics 18-Feb-08
4. Professional Body 28-April-07
5. Resistance to Change 26-Apr-08
6. Business, Customer Value & Management Accounting 19-June-08
7. Activity Based Management – Dispelling the myths Par I – 13-June-08
8. How to Share Blog posts with friends 25-May-08
9. Management Accountant Blog Home

Read Full Post »

Ethical Decision Making

Recently BBC uncovered in the report on Child Labour practices in India where suppliers of the clothes of high street retailer Primark had used child labour to finish the goods. Primark fired all the three firms involved. The question is about Ethics and Ethical values.

What is Ethics ?

Business ethics is the broadest of the three terms. It addresses the morality of both economic systems (e.g., the free market, socialism, communism) and the conduct of the organizations found within these systems (e.g., corporations in a free market system).

Corporate ethics may be viewed as a subset of business ethics. Corporate ethics focuses specifically on issues of morality associated with business enterprises. These include relations internal to the organization (e.g., treatment of employees, dealings with shareholders, questions concerning product quality and customer service, etc.) as well as external relations (e.g., interactions with government, specific communities, society as a whole, the impact of corporate activities on the natural environment, etc.).

Source: Hovefly

Ethical dilemmas

An ethical dilemma is a situation that will often involve an apparent conflict between moral imperatives, in which to obey one would result in transgressing another.

Eg.

• Trading with rogue governments can be seen as either contribution to the continuation of the regime or supporting economic growth that benefits all concerned
• If a foreign subsidiary of a company is operating in a country where it is legal to employ child labour, should the company take advantage of it ?
• Should you bribe to get your work done ? In some countries it is a common practice where it is referred as Suvidha or Baksheesh.

An article on on Santa Clara University explains ” A Framework on Ethical Decision Making”

Recognize an Ethical Issue

1. Is there something wrong personally, interpersonally, or socially? Could the conflict, the situation, or the decision be damaging to people or to the community?

2. Does the issue go beyond legal or institutional concerns? What does it do to people, who have dignity, rights, and hopes for a better life together?

Get the Facts

3. What are the relevant facts of the case? What facts are unknown?

4. What individuals and groups have an important stake in the outcome? Do some have a greater stake because they have a special need or because we have special obligations to them?

5. What are the options for acting? Have all the relevant persons and groups been consulted? If you showed your list of options to someone you respect, what would that person say?

Evaluate Alternative Actions From Various Ethical Perspectives

6. Which option will produce the most good and do the least harm?

Utilitarian Approach: The ethical action is the one that will produce the greatest balance of benefits over harms.

7. Even if not everyone gets all they want, will everyone’s rights and dignity still be respected?

Rights Approach: The ethical action is the one that most dutifully respects the rights of all affected.

8. Which option is fair to all stakeholders?

Fairness or Justice Approach: The ethical action is the one that treats people equally, or if unequally, that treats people proportionately and fairly.

9. Which option would help all participate more fully in the life we share as a family, community, society?

Common Good Approach: The ethical action is the one that contributes most to the achievement of a quality common life together.

10. Would you want to become the sort of person who acts this way (e.g., a person of courage or compassion)?

Virtue Approach: The ethical action is the one that embodies the habits and values of humans at their best.

Make a Decision and Test It

11. Considering all these perspectives, which of the options is the right or best thing to do?

12. If you told someone you respect why you chose this option, what would that person say? If you had to explain your decision on television, would you be comfortable doing so?

Act, Then Reflect on the Decision Later

13. Implement your decision. How did it turn out for all concerned? If you had it to do over again, what would you do differently?

If you as an Accountant are faced with Ethical dilemmas, apply the above principles. Further refer to your institute’s code of ethics. If you are still in doubt, then consult your Institute or Association.

I would like to hear your views on this subject for further discussion. You are welcome to comment on this blog post.

Regards,

Santosh Puthran

Join me

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You may also like to read

1. Ethics on ACCA website 11-Feb-2008
2. Combined of Corporate Governance UK 20-April-08
3. 100 Most Influential People in Business Ethics 18-Feb-08
4. Professional Body 28-April-07
5. Resistance to Change 26-Apr-08
6. Business, Customer Value & Management Accounting 19-June-08
7. Activity Based Management – Dispelling the myths Par I – 13-June-08
8. How to Share Blog posts with friends 25-May-08
9. Management Accountant Blog Home

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Stakeholder Analysis

A Stakeholder Analysis is an approach that is frequently used to identify and investigate the Force Field formed by any group or individual who can affect or is affected by the achievement of the objectives of an organization. Stakeholder Analysis identifies the ways in which stakeholders may influence the organization or may be influenced by its activities, as well as their attitude towards the organization and its targets.

List of typical stakeholders

• Owners and stockholders, investors
• Banks and creditors
• Partners and suppliers
• Buyers, customers and prospects
• Management
• Employees, works councils and labor unions
• Competitors
• Government (local, state, national, international) and regulators
• Professional associations, Industry trade groups
• Media
• Non-governmental organizations
• Public, social, political, environmental, religious interest groups, communities

The power and influence of stakeholders:

The extent to which stakeholders affect the activities of an organisation depends on the relationship between the stakeholder and the organisation. Mendelow’s matrix provides a way of mapping stakeholders based on the power to affect the organisation and their interest in doing so. It identifies the responses which management needs to make to the stakeholders in the different quadrants.

Following categorisation of stakeholders in a manufacturing company:

Low + Low : Small customers, Small Shareholders
High + Low: Major Customers, Central Govt, Media
Low + High: Employees, Environmental Groups, Local Community
High + High: Institutional Investors, Local Planning Authority

Regards,

Santosh Puthran

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1. Corporate Governance, UK
2. Combined Code of Corporate Governance
3. Honda 50cc Bike – Imposed Strategy
4. Red Monkey Innovation
5. World’s 50 most innovative companies
6. Resistance to Change
7. Strategic Drift
8. Strategic Development
9. Books of Mintzberg on Amazon
10. Books of Philip Kotler
11. Porter’s Diamond
12. Understanding Three Stages of Change

Further readings:

• www.12manage.com
• www.odi.org.uk
• www.wikipedia.org
• www.nhs.uk

Read Full Post »

Stakeholder Analysis

A Stakeholder Analysis is an approach that is frequently used to identify and investigate the Force Field formed by any group or individual who can affect or is affected by the achievement of the objectives of an organization. Stakeholder Analysis identifies the ways in which stakeholders may influence the organization or may be influenced by its activities, as well as their attitude towards the organization and its targets.

List of typical stakeholders

1. Owners and stockholders, investors
2. Banks and creditors
3. Partners and suppliers
4. Buyers, customers and prospects
5. Management
6. Employees, works councils and labor unions
7. Competitors
8. Government (local, state, national, international) and regulators
9. Professional associations, Industry trade groups
10. Media
11. Non-governmental organizations
12. Public, social, political, environmental, religious interest groups, communities

The power and influence of stakeholders:

The extent to which stakeholders affect the activities of an organisation depends on the relationship between the stakeholder and the organisation. Mendelow’s matrix provides a way of mapping stakeholders based on the power to affect the organisation and their interest in doing so. It identifies the responses which management needs to make to the stakeholders in the different quadrants.

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Following categorisation of stakeholders in a manufacturing company:

Low + Low : Small customers, Small Shareholders
High + Low: Major Customers, Central Govt, Media
Low + High: Employees, Environmental Groups, Local Community
High + High: Institutional Investors, Local Planning Authority

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Regards,

Santosh Puthran

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You may also like to read

1. Corporate Governance, UK
2. Combined Code of Corporate Governance
3. Honda 50cc Bike – Imposed Strategy
4. Red Monkey Innovation
5. World’s 50 most innovative companies
6. Resistance to Change
7. Strategic Drift
8. Strategic Development
9. Books of Mintzberg on Amazon
10. Books of Philip Kotler
11. Porter’s Diamond
12. Understanding Three Stages of Change

Further readings:

• www.12manage.com
• www.odi.org.uk
• www.wikipedia.org
• www.nhs.uk

Read Full Post »

Corporate Goverance – UK

Corporate governance is the process by which companies are controlled and directed – a company’s board is ultimately responsible for this. The key to good corporate governance is having the right strategy, leadership and control structures in place to produce and sustain the delivery of value to shareholders.

Good corporate governance, and its visibility, gives confidence to all associated with a company that it is being managed well and that value is being created. Our objective in this report is to summarise the key elements of the Company’s governance structure and relate this to the principles in the UK ‘s Combined Code on Corporate Governance – a code of good practice for listed companies.

THE BOARD

“Every company should be headed by an effective board, which is collectively responsible for the success of the company.” Combined Code – Main Principle A.1

CHAIRMAN AND CHIEF EXECUTIVE

“There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.” Combined Code – Main Principle A.2

BOARD BALANCE AND INDEPENDENCE

“The Board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such not no individual or small group of individuals can dominate the board’s decision making.” Combined Code – Main Principle A.3

APPOINTMENTS TO THE BOARD

“There should be a formal rigorous and transparent procedure for the appointment of new directors to the board.” Combined Code – Main Principle A.4

INFORMATION AND PROFESSIONAL DEVELOPMENT

“The Board should be supplied in a timely manner with information in a form and of a quality to enable it to discharge its duties. All Directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.” Combined Code – Main Principle A.5

Source: Chicks drinking

PERFORMANCE EVALUATION

“The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.” Combined Code – Main Principle A.6

RE-ELECTION

“All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.” Combined Code – Main Principle A.7

FINANCIAL REPORTING

“The board should present a balanced and understandable assessment of the company’s position and prospects.” Combined Code – Main Principle C.1

INTERNAL CONTROL

” The board should maintain a sound system of internal controls to safeguard shareholders’ investments and the company’s assets.” Combined Code – Main Principle C.2

RELATIONS WITH SHAREHOLDERS

“There should be a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Combined Code” – Main Principle D.1

AUDIT COMMITTEE AND AUDITORS

The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Combined Code Main principle C.3

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You may also like to read

1. Combined Code of Corporate Governance
2. Honda 50cc Bike – Imposed Strategy
3. Red Monkey Innovation
4. World’s 50 most innovative companies
5. Resistance to Change
6. Strategic Drift
7. Strategic Development
8. Books of Mintzberg on Amazon
9. Books of Philip Kotler
10. Porter’s Diamond
11. Understanding Three Stages of Change

Sources:

1. Corporate Governance – BAE website
2. Corporate Governance – Invensys website
3. Corporate Governance – Wikipedia

Read Full Post »

Corporate Goverance in the UK

Corporate governance is the process by which companies are controlled and directed – a company’s board is ultimately responsible for this. The key to good corporate governance is having the right strategy, leadership and control structures in place to produce and sustain the delivery of value to shareholders.

Good corporate governance, and its visibility, gives confidence to all associated with a company that it is being managed well and that value is being created. Our objective in this report is to summarise the key elements of the Company’s governance structure and relate this to the principles in the UK ‘s Combined Code on Corporate Governance – a code of good practice for listed companies.

THE BOARD

“Every company should be headed by an effective board, which is collectively responsible for the success of the company.” Combined Code – Main Principle A.1

CHAIRMAN AND CHIEF EXECUTIVE

“There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.” Combined Code – Main Principle A.2

BOARD BALANCE AND INDEPENDENCE

“The Board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such not no individual or small group of individuals can dominate the board’s decision making.” Combined Code – Main Principle A.3

APPOINTMENTS TO THE BOARD

“There should be a formal rigorous and transparent procedure for the appointment of new directors to the board.” Combined Code – Main Principle A.4

INFORMATION AND PROFESSIONAL DEVELOPMENT

“The Board should be supplied in a timely manner with information in a form and of a quality to enable it to discharge its duties. All Directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge.” Combined Code – Main Principle A.5

Source: Chicks drinking

PERFORMANCE EVALUATION

“The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.” Combined Code – Main Principle A.6

RE-ELECTION

“All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance. The board should ensure planned and progressive refreshing of the board.” Combined Code – Main Principle A.7

FINANCIAL REPORTING

“The board should present a balanced and understandable assessment of the company’s position and prospects.” Combined Code – Main Principle C.1

INTERNAL CONTROL

” The board should maintain a sound system of internal controls to safeguard shareholders’ investments and the company’s assets.” Combined Code – Main Principle C.2

RELATIONS WITH SHAREHOLDERS

“There should be a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place. Combined Code” – Main Principle D.1

AUDIT COMMITTEE AND AUDITORS

The board should establish formal and transparent arrangements for considering how they should apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the company’s auditors. Combined Code Main principle C.3

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Combined Code on Corporate Governance: Appointment of directors

This is quite interesting in Combined code on Corporate Governance, UK.

Induction and training for directors

The authors of the Code believe that new directors have to be properly trained. This means an effective induction process when the director joins the board and an on-going programme of professional development. In the words of main principle A.5, directors should “regularly update and refresh their skills and knowledge”. (If they do not they cannot possibly hope to keep up with the pace of legislative and regulatory change. The new code of directors’ duties in the Companies Act 2006 – see the section on Directors’ duties – is only one recent development.)

“The company,” says the Code, “should provide the necessary resources for developing and updating its directors’ knowledge and capabilities”. Note also the obligation in Listing Principle 1: “A listed company must take reasonable steps to enable its directors to understand their responsibilities and obligations as directors.”

Source: Paula

The essential point is that directors must be given the right “equipment” and get the right preparation to do their jobs/discharge their duties. There is reference to “tailored induction”. Thus the Code recommends that new non-executives get the chance to meet major shareholders as part of their induction process (A.5.1) and that “consideration should be given to visiting sites and meeting senior and middle management” (Higgs’ Suggestions for Good Practice).

For all directors, the right “equipment” includes “accurate, timely and clear information”. The company secretary, under the direction of the chairman, must, say the supporting principles, ensure “good information flows within the board and its committees and between senior management and non-executive directors”.

The words “clear” and “good” here are sometimes forgotten when directors are first appointed. Companies can tend to overburden an individual. As ICSA says in its guidance notes on the induction process, “it has become apparent that some newly appointed directors have been completely overwhelmed with the sheer volume of documents and other papers provided by the well meaning company secretary to such an extent that some have been completely put off by it”. To avoid this, ICSA suggests giving the director essential information only on their appointment and providing further necessary information in the subsequent few weeks. Subsidiary information can follow once the first two batches have been digested.

The company should also be prepared to pay for independent professional advice where the directors judge it necessary.

Source: Out-Law

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