T17 Corporate Governance

Hallo.
On chapter 3, when doing the evaluation and using CG codes as comparators, do I need to specify or state what the whole principle says first before going on to apply it or I can just say for example;
According the OECD, the board should be doing such and such but in this case they are doing this instead and then go on and analyse….(something like that). I’m wondering if I am going about it the correct way. Not sure if my question is clear enough.
Thank you in advance for your response

Sorry for the delay in getting bac to you.

I have mixed views about a report WIrecard. Yes there was very poor corporate governance and fraud but I have found in practice [from personal experience with students] that it is very difficult to structure a report on Wirecard’s CG weaknesses probably because it was a Germany company and the German CG system is so different from that it many other companies and essentially it was a fraud case.

You would need to look at the German Kodex and make comparisons with the UK Code as best practice. Although this sounds simple enough in practice I suspect you will find it harder. As such I actually advise my own students against choosing this company and think a UK company is easier to handle, Alternatively if looking for a foreign company go for Boeing – but you need to recognise with this what the key issues were and focus on how the weak governance led to the crashes [rather than focus on the crashes themselves] and appraise it using the UK Code as the benchmark

Most definitely – both are mentioned in the Cadbury report and the first Principle of focus in the UK Code [ 2014/ 2016/ 2018] has always been on effective leadership. Now however stewardship is only touched upon in the UK Code 2018 itself as there is a separate Stewardship Code 2020 [an update of the Stewardship Code 2012].

As per the Assessment Criteria p.17-21 of the June 2021 Info Pack, you need to demonstrate use of a VARIETY of different formulae. I depends on what company info you have but there should be the potential to take numerical data from the Annual Reports and produce some graphs and from the data work out some percentages and averages and the like. I normally suggest at least 4 different formulae so that the AC are fulfilled

Thank you for the wonderful insight.
I’ll keep them in mind while making my excel file.

My project os on Luckin Coffee. I was re reading my report. In the Impact on Stakeholders part, I have used me mendelow’s matrix and have discussed the following stakeholders
1. Chairman and CEO, their net worths etc were greatly effected.
2. Sister Concerns (these are CarInc and UCAR) they had involvement in fraud perpetration.
3. External Auditors
4. China Concept Stocks

Do you think these are adequate?

Hi Ms Gillian. I just have a somewhat silly question. When we are writing the company responses, do we still need to apply the CG codes as well or we can just list and explain what the company did, since the codes were applied during the evaluation of the issues?

Thank you very much for the helpful response

There is no mandatory way to present this, the important thing is to cover the company response adequately. Remember that in some cases the company response may develop over time e.g. , CEO removed, subsequently the Board is refreshed, new policies and procedures implemented, new external auditors appointed etc. so the response which may have been slow becomes more proactive over time.

Where the company has collapsed then obviously you have to examine how failure by the Board in doing less than was required to ensure long-term sustainability in terms of managing the elements of its governance e.g. inadequate risk assessment, inappropriate strategies, lack of board independence led up to its demise. Although this can be mentioned as you go along I would recommend having a final section before the conclusions that deals with/sumarises this

As long as you deal with the topic title fully, evaluate [rather than just describe what went wrong] and ensure that you have complied with the Assessment Criteria [including reference appropriately and have a good structure] then you should be able to pass.

Most fails relate to insufficient evaluation or not demonstrating adequate understanding of the models used. Poor structure can also sometimes lead to a fail because if your report ‘jumps about’ then the marker will struggle to make sense of it. A good way of avoiding this is to give a close friend/ relative or colleague your report to read and to ask them to comment on anything that they don’t understand and/or indicate areas where they may have struggled to make sense of what has gone on.

The impact on stakeholders is certainly worth bringing in but unless Mendelow’s Matrix is your MAIN model this does not have to be too detailed. [As I may have mentioned it is not one of my favourite models for this topic as I believe there are usually better models – depending on what the weak governance entails].

Thank you for such keen advise. I’ll surely get it read from a closed one.

I had one more confusion, is it necessary to include limitations of Mendelow’s Matrix in Part 2 of the report. If yes, do we also have to mention how we overcame them?