(Archive) T17 Corporate Governance

Hi trephena Can I use Tesco co for topic 17.

Yes,as the financial statement fraud issues at Tesco emerged in 2014. There have some other issues affecting governance too since that time with their senior independent director resigning so that could so be brought in too as evidence that the company has had on going CG issues. Unlike the old topic title the discussions for the new topic 17 will mainly focus on what went wrong, key issues, what has been done since about these, an assessment of whether they have been rectified and the impact of the scandal on stakeholders.

Hi, is companies like Compass Group and WPP a good choice for this topic as well?

Hi Everyone, No matter what topic you choose please demonstrate your spreadsheet skills as this is compulsory. Some of the topics can be theoretical in nature, even if this is the case OBU new rules require that spreadsheet should be attached as an appendix. Please refer new info pack section 7.d.viii) Information Technology.

@youngria - it is impossible for me to research CG issues for every company and make suggestions as sadly I just do not have copious amounts of free time to enable me to do so. However I would suggest using a search engine for any companies you have in mind and feeding in some key words along with the company name e.g 'WPP Corporate Governance Issues'. This will bring up some initial information and then you can subsequently refine your search. The most reliable initial informed articles will come from the business press websites e.g. in the UK telegraph.com and the BBC news (business pages) and the like and Reuters, Forbes.com and similar sites will be useful for both UK and non-UK companies. Using my search suggestion above brought up not just shareholder revolt on executive pay but a couple of other interesting articles: Standard Life, a major institutional shareholder being worried about succession planning at WPP and https://www.theguardian.com/business/2017/mar/03/martin-sorrell-wpp-rupert-murdoch-fox-facebook-snap-forecast-2017 - the latter being an article based on Martin Sorrell's belief that good CG can actually hamper company performance under certain conditions. So yes there is probably sufficient here to indicate the company could be a good subject for the new Topic 17 allowing potential for critical analysis and discussion. However further research would be needed to identify exactly what the main CG issues are and whether these could be developed adequately into a decent 4,500 word analysis and evaluation (without indulging in unnecessary padding out)

@ashwinacca - your point about the spreadsheet is quite important so I'll copy and paste it and will tack It on to our Top Tips for the RAP too. :-)

Hi, is it fine if i were to choose company that has scandal during the period(2012-2016) but maybe its not as serious as those companies like Tesco?

Yes as long as there are sufficient corporate governance issues that you can discuss: You will have to first introduce the topic of CG briefly. ( Please note CG did not start with Enron and neither was Enron the first major scandal - just the first major scandal of the 21st Century). Then for your company Identify the problems and analyse their implication, and also consider the impact of these issues on all relevant stakeholders. You also need to look at what has been done to improve CG and stewardship in the entity and look at what the UK code and Stewardship Code say in relation to the identified issues you identified.

@trephena said: Yes,as the financial statement fraud issues at Tesco emerged in 2014. There have some other issues affecting governance too since that time with their senior independent director resigning so that could so be brought in too as evidence that the company has had on going CG issues. Unlike the old topic title the discussions for the new topic 17 will mainly focus on what went wrong, key issues, what has been done since about these, an assessment of whether they have been rectified and the impact of the scandal on stakeholders.

Thank you

Hi Trephena & Everyone At the risk of sounding stupid, one of my chosen company's misconduct was investigated and penalised in 2012. However, the period under investigation was 2007 to 2010. My question therefore is, since wrong doing was confirmed and punished in 2012 does this particular governance failure qualify for the '...within the last 5 years' requirement..' of the topic. There are sufficient other failures to work with without the one mentioned above. I would not want to take the risk of going against instructions if there is doubt in anybody's mind. Thank you for your time.

@Alejandra - if there are ongoing issues then you can start with the 2012 issue and work forward explaining what happened in the past and then explain what has gone on since. You will need to set out the malpractices and look at best practice and consider the 'deficit' between them, focusing mostly on the more recent issues (rather than the pre-2012 ones). Comment and evaluate the effect these breaches in governance have had, and potentially could have on all stakeholders.

Thank you Trephena for the prompt and helpful response. I feel like I have bitten off more than I can chew with this topic or maybe it's my choice of bank! You see, of the 6 issues I identified from 2012 up to 2017, 5 are based on events that took place prior to the year 2012! Take for example the charges laid against the bank and four former executives on June 20th this year. The charges are based on events that took place in 2008. Investigations began in 2012. That leaves me with only one recent event so far which is dubious behaviour of the Chief Exec in trying to unmask the identy of a whistle blower (2016) and interfering in a matter involving a client of the bank and his brother in law (2017). I think I am better off looking at a different company otherwise I may risk padding like you mentioned on a different post.

That will be Jes Staley and Barclays then?! It is fine if the events took place a while back if they have only recently come to light. Think about it logically: if they were known about at the time they would have probably been dealt with and would not have become a scandal. The whole point is it either implies management acquiescence or that their internal controls and CG procedures are weak if they happened and nothing was done about it soon afterwards. Staley's behaviour is totally reprehensible and would allow you to bring in some critical review of how the tone at the top should be right otherwise there is little chance that an organisation will be ethical if the CEO lacks integrity. The whole case is interesting as the company self-reported the incident I believe - so some part of their CG procedures have improved. I certainly don't think you should dismiss this topic / organisation as there is a lot you can discuss without 'padding'! :-)

Thank you very much Trephena. You have helped lift the fog.

Hey Trephena, I have another silly little question please. I have an uneasy feeling about directly quoting the code principles and regulation throughout (e.g. the principle states " every company should do such and such...". My question: is it permissible (or advisable) to paraphrase the principle to avoid quoting? I will reference.

Quite a,sensible question actually! Although citing laws and wording of regulations such as a Code is one of the exceptions to making direct citations (i.e. it IS permitted) where you can, you should try to paraphrase. For two reasons really - first citing legislation etc comes over as a bit boring because of the nature of the wording and vocabulary; and secondly because it will start to eat into your word count.

Thank you!

Hi Trephena, I didn't manage to complete my RAP in the previous period. Luckily - following your advice - I picked a company with weak governance (Sports Direct) and I'm now working on re-arranging my material to meet the new requirements. I was wondering which business models are relevant to the new topic in our opinion? Do you think the stakeholder mapping should still be included?

In the literary review give a brief outline of corporate governance development over the last 40 years or so (contrary to what a lot of people believe, Enron was NOT the first major scandal! - Cadbury report was commissioned and reported a good 10 years before!). Look at the the UK CG Code in relation to the issues you find and it may also be appropriate to look at the Stewardship code too. The CG issues will have impacted on stakeholders so a stakeholder model is still relevant in part 2. Bring in a lot of articles from the business press to support your examples of weak governance (all referenced of course!) and their impact on the various stakeholder groups.

Thank you. By 'part 2' do you mean: 'an assessment of the origins of the corporate governance issue(s) and the organisation’s response'? I'm not yet sure how to structure my analysis.

The full title: Select an organisation that has been identified as having weak corporate governance structures within the past 5 years. Critically evaluate their corporate governance practices including an assessment of the origins of the corporate governance issue(s) and the organisation’s response. So yes by Part 2 I was referring to the organisation’s response - which covers both the Board's response and that of stakeholders (especially shareholders as technically they are the owners). Normally the Board only responds and react when the scandal breaks but the impact of the scandal and the fallout from it affects various stakeholder groups and wider community. The stakeholders affected will depend on the particular scandal e.g. with VW this included customers who find themselves owning cars that they thought were relatively environmentally friendly, which are obviously not and whose trade-in price has reduced considerably as a consequence of the scandal.

Hi - I am new to the forum and I was hoping someone could kindly shed some light. I have completed F1-F9 and would like to do T17 for the Period 35 submission. Is it feasible to produce a decent (passable) RAP on this topic prior to studying P1?

Possible if you start your research now. You need to have some understanding of Corporate Governance though. With the change in title and emphasis for T17 a detailed knowledge at P1 level is no longer necessary (though arguably desirable) - however if you ensure you read around the topic well before you start that should be sufficient to give you the necessary background. Here is a link to the website of Applied Corporate Governance. You may find a lot of interesting articles and commentary there to help you. ( I especially like their diagram for risk identification and management for example -also very relevant for Topic 16)$ https://www.applied-corporate-governance.com/definition-of-corporate-governance.html

Thanks Trephena! I will have a quick read of the link and make a decision:)

One of the major initial problems about the new topic is selecting a suitable company. I think you need to find a company that has at least one major issue and argue that well by looking at the problem from several angles. Normally you can then find a couple of minor issues that can be used to make a further case of weak corporate governance. For example there are many instances in the UK about excessive executive pay and shareholder revolt -see businesses pages of major media as every week (and in fact almost every other day) a new case is reported. To develop the argument consider the following article by the High Pay Centre https://highpaycentre.org/pubs/are-remuneration-consultants-independent which considers whether remuneration consultants are truly independent. The executive pay (the total compensation package) in your chosen organisation could be compared with increase in shareholder value / profits, average worker pay, dividends as a measure of what the CEO is objectively contributing (or not as the case may be) The purpose is to build up a well researched argument with some critical thought involved and bringing in objective evidence like this shows you have considered the topic in a 'rounded' as opposed to superficial way. The study could be combined with an investigation/research into other areas where there may be potentially weak governance e.g. one of the on-going issues is number of women on boards (considered to add strength to a board as females dilute the 'alpha male' mentality and take a more balanced attitude to risk). Or there might be issues of zero hours contracts and dubious other practices. Adopting this type of approach (taking the major issues and subjecting them to balanced scrutiny) if adequately researched, well presented and referenced should lead not only to a pass but probably a B grade or above. In the UK most of the major banks continue to have 'issues' of one sort or another -HBOS (now under Lloyds) and RBS have been accused of pushing small viable businesses into liquidation via exploitative practices and some employees face or have faced charges of corruption. Currently there are fears of another financial crash because of loose lending practices /lack of responsible lending and unprecedented levels of consumer debt and security concerns regarding customer data and bank fraud. Overseas Swiss based ABB has had a couple of major issues -see https://www.telegraph.co.uk/business/2017/02/10/engineering-group-abb-investigated-serious-fraud-office/ and https://uk.reuters.com/article/uk-abb-fraud-idUKKBN1610HF Meanwhile Samsung too has been rocked by scandal https://www.bloomberg.com/news/features/2017-07-27/summer-of-samsung-a-corruption-scandal-a-political-firestorm-and-a-record-profit Just a few possibilities here then for a good and interesting RAP on new Topic 17

If you choose to go focus on one issue you should still touch upon some of the other ones. You can be a bit selective but whoever marks it would expect you to demonstrate your knowledge and research skills so don't gloss over anything completely if it is significant.

Hi trephena, can you tell me what business/financial models would you recommend for the new topic 17? apart from mendelow's?

The new topic is less formulaic than the old title so it is harder to lay down specific rules on what you must do. Although most students are familiar with the UK CG Code they are less familiar with many of the other codes and regulations (e.g. the Stewardship Code). When you introduce the topic I have suggested outlining briefly the development of CG as a sort of literary review, mentioning key reports and codes (this is like with T6 where motivation theories are discussed). During your analysis of the scandal(s) you should refer back where relevant to legislation, codes and regulations that are implicated and been contravened. In the final part you should consider how the various stakeholder groups have been affected and so any stakeholder model (including Mendelow's) is appropriate here. Take a look at https://www.applied-corporate-governance.com/best-corporate-governance-practice.html or https://www.stakeholdermap.com/stakeholder-theory.html What I have found interesting is that competitors can impact on governance either negatively e.g. most of us refer to poor governance in 'the banks' (where the bad CG practices of a few have tarnished the reputation of the many) or positively e.g. some companies want to distinguish themselves from the questionable practices of competitor companies and see good governance as one way of promoting themselves and their products and services (most consumers want to support ethical and well run companies)

Hi Trephena, pls is swot analysis a suitable business model for topic 17?If yes,how can I apply it?

Hello, Anyone with the link where I can obtain OBU RAP exemplar? I want to believe using the headings of the exemplar is not considered as plagiarism,if it is kindly let me know. Am doing T17,and forgive me if this may sound silly,as you know it`s a requirement to use Accounting/business models or techniques,I was wondering if IASs are accounting techniques that I can use.I believe for the business model part,Trephena suggested the use of stake holder theory and share holder theory. I stand to be corrected for your corrections will help me a lot.