(Archive) T17 Corporate Governance

US Corporations tend to be governed by a combination of Federal and state law, including the Foreign Corrupt practices Act, the Sarbanes-Oxley Act and the Dodd-Frank Act. Many of the types of practices and procedures that you would find in CG Codes are set out in the last two but have the force of law (unlike most Codes which are principle based so have no legal teeth) Whistleblowing also has a higher profile (and in the case of reporting crimes against the US government under the False Claims Act it can be very financially rewarding). Decide why you are choosing a particular company and use business articles to guide you towards the legal and governance issues as they may mention particular statutes that the company has broken.

@trephena Thank you trephena! The company I chose has worldwide operation but it's an US company. Should I just focus on the events happened in the US? or anything happened around the world?

Focus on the scandals and breaches of CG wherever they may have happened regardless of whether they took place outside the USA.

@trephena Thank you trephena. I hope this is my last question. If the company I chose is not a publicly traded company, does Sarbanes-Oxley Act still apply?

To be honest I'm not sure but probably not. However as with other CG codes the principles behind them are the benchmark for good governance so even if the company is not legally bound by SOX legislation serious discrepancies between the provisions of the Act and corporate behaviour could still be construed as evidence of weak governance and used as examples.

@ trephena, Hi Trephena, I've been going through the forum to get an insight before i start writing anything and did realise from your chat to Alfred about T17, that you advised having done P1 or have the text to read. I've not done any P level papers yet. if i have to read the old P1 notes (as the paper is changing this year), how much of the text do i need? Any other prior advise you can suggest? am not used to writing reports tbh. Many thanks

Hi Frank The old Topic 17 was far more 'routine' than the new one and as such required a student to be fairly familiar with the details of the CG Code. Now new Topic 17 involves an appreciation of the principles of good governance and business ethics in relation to those making corporate decisions and formulating policy. As it involves selecting a company involved in a CG scandal and analysing what went wrong and the overall impact on a variety of stakeholders, it develops a student's practical analytical skills (rather than rote learning). Whilst it is probably not necessary to have passed P1, some knowledge of what good governance means and the consequences of poor governance need to be understood. Being able to research well using a number of sources (including business pages) and produce balanced arguments are now vital. Therefore being able to apply critical thinking skills are what will get a pass (regardless of whether you have passed P1 or not). Some references to the Code will normally be appropriate but whereas the application of a stakeholder model invariably used to revolve around students producing Mendelow's Matrix, these alone are now inadequate for a pass. Lots of reading around the topic therefore is better than just being word perfect with respect to a P1 manual! The Info Pack sets out a basic structure but you should ensure that you use plenty of headings and avoid dense passages of text (inter-space them with appropriate graphs, charts etc to break up the text).

many thanks for that

Hi Trephena, hope you're well. I've been reading through the exemplars and I've noted that they are written in third person eg During the authors time as an ACCA..... Should this be the case or am I equally fine using direct dialogue? many thanks

Academic work is always written in the 3rd person e.g. "The author" or "the researcher". You only use 'I' when writing the SLS - it's fine there as it is a personal statement

many thanks trephena

Dear Trephena, Please i want to confirm if something new has been added to Topic 17 for Period 37 and if we can get the recent Information pack or if the one for Period 36 is still valid. Thanks a lot

The Topic 17 title (and Topic 20 fior matter) remains the same as for P36. The new Information Pack is out in the new week or two and will be downloadable from accaglobal

Hi Trephena, hope you're well as always! i need your guidance to know if am doing this right. I've developed the following objectives and questions. Objectives •The purpose of this is project is to establish what Corporate Governance code and guidelines existed within Carillion PLC and the extent to which these were followed. •The research will also analyse how such codes and guidelines were in line with the relevant country’s codes on Corporate Governance. • The author will use this project to assess the extent to which corporate governance practices played a part in the downfall of the organisation. • This project will also compare the effectiveness of Carillion’s corporate governance practices with its comparator, BB. Questions 1.How effective were corporate governance arrangements with in Carillion? 2.What impact did Corporate governance have on the market, operating and financial performance of Carillion? 3.What corporate governance codes were adopted by Carillion? 4.How were the issues of Corporate Governance unfolded and what impart did they have on the organisation? 5.Did Carillion demonstrate better corporate governance practices than its comparator? 6.Who are the key stakeholders of Carillion? 7.What internal and external procedures are in place to evaluate Corporate governance performance within Carillion? Would Balfour Beatty be a good comparator? many thanks

Hi Frank Trephena is currently sunning herself on a Greek Island so I am answering on her behalf... Although you read through the original Topic 17 forum thread, have you read through all of this one, which Trephena set up to deal with the new Topic 17 from Period 35 onwards Frank? Although your basic objectives seem to be ok, I would be bolder than this with my questions (they seem a bit 'tame 'in relation to the impact this company failure had both in terms of its stakeholders and its size - Carilliomwas massive - and so was its impact on other sectors of the UK economy) I'd actually introduce this topic with a statement about the spectacular collapse of Carillion and the role that CG played in this (there can be no doubt that those at the top failed this company very badly). So rather than having questions tied to the various provisions of the Code, I would consider all of the serious failings. Why did it collapse? What does this tell us about the efficacy of a CG Code ? (For example no doubt their last set of accounts had statements about how the BoD complied with the CG Code - note so did Tesco 's 2014 annual report!) What role should the auditors have played in signaling potential problems? These types of strong direct questions are required because you need to address and answer them in your analysis. You need to bring out and emphasise how delinquent the BoD was and how directors seemed to be more interested in personal gain than in Carillion's many varied stakeholders (including government, taxpayers, employees, ex-employees and their pensions, as well as suppliers and shareholders) So Question 3 is a bit superficial as it is obvious they should have been adhering to the 2016 UK Code and with Question 5 I am not sure they could have demonstrated better CG than a comparator (otherwise why did they fail?). BTW you do NOT have to have a comparator for new Topic 17. I mentioned auditors: as part of the discussion you might also look at whether the auditors could have acted more proactively (especially as with the BhS scandal their auditors PwC have been recently heavily fined for signing the company off as a going concern when it clearly wasn't). You might like to look at this article by Applied Corporate Governance as it discusses some aspects of 'apparent compliance' and how even so companies have still collapsed (and mentions this in relation to Carillion and the basic principles set out in Cadbury 1992) https://www.applied-corporate-governance.com/regulation-compliance/dont-rely-on-compliance/ You need to appreciate that the approach to new Topic 17 is very dynamic and completely different to that of old T17 - it is far more 'holistic' Athough you may be expected to be familiar with the Code you need to demonstrate a practical understanding of it rather than merely the theory of it. So rather than just look at the latter also look at the Stewardship Code (produced also by the FRC) as this is probably as relevant if not more so. Hope this helps Regards Gillian

Although everyone seems to be aware that when doing this topic you need to consider a relevant CG Code many students overlook the fact that alongside any code (or in place of it) there may be actual legislation in some countries e.g. in the USA there are Sarbanes-Oxley (SOx) and Dodd-Frank Acts (named after the toes who introduced this legislation) which has the full force of law and in the UK there are the Companies Acts. It may therefore be important to consider this as well - see the link to the following https://www.accaglobal.com/in/en/technical-activities/technical-resources-search/2007/july/companies-act-2006.html

Many thanks Gillian

Hi Frank I also suggest that you look at the ACCA guide mentioned in my last post in connection with directors duties. This should stimulate your discussions as to whether the directors had acted in the best interest of the company and its shareholders (as required by law) You could also in respect of other stakeholders consider whether there should be legal measures in place regarding pension funds (and the 'looting' of them. Although the BhS was possibly too recent to have brought about any changes that might have affected Carillion (the wheels of law grind slowly!) there have been issues in this area going back many years (research Maxwell and Mirror Group's pension fund) which have still to be regulated properly. Compare and contrast how the directors looked after their own interests with their own bonuses and pensions while employees and ex-employees rights were snatched away. I hope you now have a few ideas about how to develop your work as I am sure if you can do this it will lead not only to a pass but if done adequately, a higher grade Good luck! Gillian

Dear Gillian, I would like to know if i can use a private company like Uber. My mentor says its better i use a listed company and also Uber doesn't publish annual reports. Would it still be a good choice of company? Thanks in advance.

In terms of Topic 17 the absence of an annual report is not critical (like it would be for Topics 8 and 15). The accounts will nevertheless have to be audited (particularly if it goes for an IPO where it will be subjected to greater scrutiny by analysts). As I mentioned above in relation to Tesco and Carillion, the Corporate Governance statement issued by the BoD was subsequently proved to be grossly inaccurate (full of wishful thinking!) and with BhS the auditors were heavily criticised - so in many respects the annual report is no guarantee of good governance and therefore a lack of accessibility to it not necessarily a major problem! As the company is not listed in the UK it is not bound by a Code like plcs are. In the USA companies listed on SEC have to follow SOx and Dodd-Frank. However just because a company is not listed it does not mean that such companies can ignore governance since as I have tried to explain, governance is about how a company is directed and controlled and directors adhering to principles, best practice and company law and therefore this should apply to all companies even unlisted ones. Key to Uber is that it is on the unlisted securities market and hopes to go for a listing (the IPO I mentioned earlier) so CG will become very important and a company demonstrating poor governance at this stage (a) might not attract major investors or (b) indicate that things are unlikely to get better once it is listed. There is probably sufficient if you research using key words such as " poor corporate governance and Uber" to find articles for you to draw on to analyse its governance practices - see Christopher J. Hewitt and Jayne E. Juvan article "Uber's continuing corporate governance crisis" as this is quite a good article to start with. So if you think you can cover the company well from sufficient angles then this could be a fairly reasonable choice of company. (I think Uber does have a lot going for it with respect to Topic 17 as you can discuss culture and tone at the top as well as the voting share issue, however other students please note: this many not necessarily be the case for all private companies) Remember you will need to supply some graphs and a spreadsheet but you could use growth figures (I would think these are available for the last few years) and market share for these.

Thank you so much for the detailed response!

Dear Gillian, Please can I ask for your advice – do you think that RAP on Sports Direct should focus on the zero-hours contracts issue or the controlling shareholder vs minority shareholders issue? If on zero-hours contracts issue (which the company is ‘famous’ for - that’s why I am leaning towards it), then from corporate governance perspective would it be a problem of ethics/values (the board did not set the correct values which led to people being treated badly) or risk oversight (it resulted in negative publicity and contributed to the decline in share price)? Thank you in advance.

"do you think that RAP on Sports Direct should focus on the zero-hours contracts issue or the controlling shareholder vs minority shareholders issue?" I think you need to look at ALL the issues as this will make a better report. In that respect you have made a good choice as there several issues that you can bring into this report - it isn't just zero hours contracts it is the whole culture and tone at the top that has led to a poor health and safety record and Sports Direct being described as having conditions like a Victorian workhouse! Institutional investors do not want to be associated with an organisation that treats people as a commodity (hence the decline in share price as you note)., So there are many aspects and angles to explore with this organisation and they are intertwined. Rake up all the dirt - that is what this topic is all about (just so long as you report the issues in a balanced way i.e. in a matter of fact way and do not sensationalise them)

@adun - an article 'hot off the press' about Uber ! https://www.bbc.co.uk/news/business-44594058

Good morning. I’ve chosen Samsung as my company but I’m having trouble finding out which corporate governance code it follows? The general code in South Korea is the Commercial code and there’s another for listed companies. Do I go ahead with this as the benchmark?

You may find this link helpful if you have not already used it - however you are right in principle in that there is a Korean Commercial Code https://uk.practicallaw.thomsonreuters.com/8-209-5002?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1 Remember with this topic: 1. It is about best practice and therefore you can also draw comparisons with Codes in other countries and legal jurisdictions 2. You need to get behind any scandal and weak governance isues and analyse the impact and any recent improvements made (this is different from the old style Topic 17) 3. Many Asian companies are very much under the influence of their founding families - see https://www.cfr.org/backgrounder/south-koreas-chaebol-challenge Point 3 though gives you some scope to discuss this issue in the context of whether it hinders progress in corporate governance (such discussion will add critical thought to your work and strengthen it). Good luck! Gillian

Morning Gillian, I was wondering whether it is practical to conduct my full research using just the qualitative approach based on secondary data as the carillion is now in liquidation. Many thanks for your continued support together with Trephena

Morning Frank! The key to passing this topic is to keep up to date with the latest developments (as best you can) as this shows good qualitative research. Then consider the impacts of the main points from articles. Don't be worried that the title of T17 talks about the 'company response' - this would normally be the case however the fallout from the governance issues is what it really means - and there is a lot for you to 'get your teeth into' here (in fact your problem will be having to be selective as you have to stay within the 7,500 word count). There have been quite a few articles this month in the business press (and probably a lot more to come). For example today in the Financial Times https://www.ft.com/content/638c53ba-7877-11e8-bc55-50daf11b720d This picks up on the pension fund issue, directors' liabilities and the investigation into KPMG's audits (so the Pension Regulator, FCA and FRC are all probing and MPs are also urging action against the directors) The Guardian also has a lot of articles on some of these issues which will enable you to look at many of the facets of the Carillion collapse. https://www.theguardian.com/business/carillion Interesting that accountants and lawyers will be getting GBP 70m to manage the collapse (allegedly) - presumably public money from the long suffering tax payer ! You really have the makings of a very good and interesting report Frank :D (Trephena is now back form her hols however I shall still be chipping in from time to time!)

many thanks for this...it gets more interesting by the day ta

Indeed it does Frank..... I really think that if you select an interesting company (like you have Frank) that Topic 17 can be such a rewarding choice. The bonus is that you are more likely to get a good grade - partly because your interest is stimulated (so that doing the work becomes more of a pleasure than a chore) and also because it has the scope for you to demonstrate great critical skills in your analysis.