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Hello Sir, for the answer for Past year paper June 2016 Question 1, about the corporate governance weakness and recommendation,I have one phrase cannot understand which is
“The board should state in the annual report the steps they have
taken to ensure that the members of the board, and in particular
the non-executive directors, develop an understanding of the
views of major shareholders about the company.”What is the mean of develop an understanding of the views of major shareholders about the company?
and why is it related to corporate governance by adding the steps into the annual report ?Thank you very much.
This is basically a quote from the UK Code. One of the main sections of the Code is “Relations with shareholders”
The main principle is that there should be “dialogue with shareholders” and that the board is responsible for ensuring that a satisfactory dialogue with shareholders takes place.
To this end:
The chairman of the board should discuss governance and strategy with major shareholders and ensure their views are communicated to the board as a whole.
NEDs should be offered to opportunity to attend meetings with major shareholders and should expect to attend if requested by major shareholders.
The annual report should then state what steps they have taken …. (as you have quoted). This could be through face-to-face meetings or surveys of shareholders’ opinions, for example.“The chairman of the board should discuss governance and strategy with major shareholders and ensure their views are communicated to the board as a whole.”
Their view is mean the major shareholders?
Is it mean the member of the board and the NED explain the corporate governance and the strategy to the shareholder and made them understand it?
or the view of the shareholder have been taken into account in the corporate governance and strategy?As I wrote it “their views” can only mean the views of the major shareholders.
Dialogue/communication is a two-way process. So yes the directors will have to inform the shareholders of their plans, etc. But these provisions of the Code are about the shareholders’ views (on those plans, etc) then being communicated to the whole board. As you conclude, so their views are taken account of in directing strategy .
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