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Summary Governance & Ethics Full Summaries
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Includes learning units 1-6 from the 2024 module outline from Varsity College.
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Governance& Ethics
Important note:
These study notes have been
compiled personally based on the
module outline for the 2023
academic year and are merely a
summary of the work. They may
include additional content or omit
certain information relevant to other
academic years. Additionally,
please be aware that the document
may contain some errors and
spelling mistakes. It is important to
note that these notes are intended
to serve as a supplementary aid for
certain topics and should not
replace the use of textbooks or
other primary study materials.
Students are strongly encouraged
to consult their prescribed
academic sources for accurate and
comprehensive information
regarding the module.
, Learning Unit 1
Corporate governance:
• A system that controls and directs a company.
• Concerned with the structures and processes directly associated with
management, decision-making and control in the organisation.
• Corporate governance was embodied and regulated by company legislation
and common law.
• King IV = The exercise of ethical and effective leadership by the board,
towards the achievement of the following governance outcomes:
o Ethical culture.
o Good performance.
o Effective control.
Narrow definition of corporate governance:
• The practise of managing and controlling of companies.
Broad definition of corporate governance:
• Managing long-term risks.
• Ethical performance.
• Sustainable business practises.
• Accountability for the company’s relationships with its stakeholders.
How governance regulates the exercise of power:
• The creation of ongoing checks and balances to ensure balanced exercise of
power within the company.
• Implementation of systems to ensure legal and regulatory compliance.
• Risks are identified and managed to ensure sustainability of company.
• Develop practices so company is accountable to stakeholders.
,How company culture is connected to corporate governance failure:
• Negative company culture is influenced by the wring tone at the top level.
• The fish rots from the head (Problems in a company can be traced back to
leadership at the top).
• Company culture defines what is acceptable.
• Enron scandal:
o A series of events involving dubious accounting practices that resulted
in the 2001 bankruptcy of Enron Corporation and the accounting firm
Arthur Anderson. The scandal resulted in a wave of new regulations
and legislation designed to increase the accuracy of financial reporting
for publicly traded companies. The Sarbanes-Oxley Act (2002)
imposed harsh penalties for destroying, altering, or fabricating financial
records. The act also prohibited auditing firms from doing any
concurrent consulting business for the same clients.
How ownership of a company is separated from the company’s controls:
• Shareholders appoint the directors.
• Directors appoint the managers to run the company.
• The managers run the daily operations of the company and keep the best
interests of the shareholders in mind (increased profits).
Challenges of an effective corporate governance system:
• Ensuring that managers and directors are accountable to the shareholders.
• Ensuring that the independent directors avoid potential conflict of interests
and interests as a whole and not personal interests take preference.
• Setting out the necessary delegation of authority while limiting it to ensure no
abuse of power.
• Ensure policies and structures in place for the company to reach its purpose.
Corporate governance vs management:
• Difference between managing (Managers) and directing (Directors).
• Directing:
o Intellectual process.
o Strategy and think beyond the daily demands.
• Managing:
o Level of physical presence and routine involvement.
, The different roles of the board of directors:
• Accountability:
o Tasks are delegated by one party to another.
o Directors account to shareholders on company’s performance.
• Responsibility:
o Duty to respond and take action.
o Execute the tasks.
o Director oversees execution.
• Authority:
o Decision making and instruction giving.
o Delegated and monitored by board.
o Board is accountable for shareholders.
Balance between power and accountability:
• Delegation of power to management must be clear and in writing.
• Board is accountable to shareholders to monitor and oversee the delegated
authority.
There are relationships among:
• Management.
• Other stakeholders.
• Minority and majority shareholders.
• Board of directors.
Authority delegation:
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