Corporate Social Responsibility and Good Governance

Principles of Corporate Governance

Accountability

accountability
noun
ac·count·abil·i·ty | \ə-ˌkauun-tə-ˈbi-lə-tē \

Definition of accountability

: the quality or state of being accountable especially : an obligation or willingness to accept

responsibility or to account for one's actions
Accountability

• It is the responsibility of the board to produce an understandable and balanced assessment of the
company’s prospects and position. The board needs to maintain a suitable relationship with the
company’s auditor. Corporate reporting, risk management and internal control principles need
established formal and transparent arrangements determined by the board.

• The board needs to establish the level of risk it is willing to take to achieve the company’s strategic
objectives.

• It is the board’s responsibility to maintain sound risk management and internal control systems.
Remuneration

remuneration
noun
re·mu·ner·a·tion | \ri-ˌmyü-nə-ˈrā-shən

Definition of remuneration

:something that remunerates : recompense, pay

: an act or fact of remunerating
Remuneration

• No director should be in a position where they are involved in deciding their own remuneration.
Remuneration packages need to be sufficient to attract, retain and motivate directors of the right quality
to run the company successfully.

• A company should not pay more than is necessary for the services of directors.

• A significant proportion of executive directors’ remuneration needs to be linked to corporate and

individual performance.

• A formal and transparent policy needs to exist to develop executive remuneration and fix the
remuneration packages of individual directors.
Relations with shareholders

• The board has a responsibility to ensure that satisfactory dialogue with shareholders takes place.

• This dialogue should ensure that shareholders have a mutual understanding of company objectives.

• The AGM is a suitable mechanism to communicate with investors and encourage their participation.
The relative merits of a framework approach to corporate governance versus a regulatory approach

There are essentially two main approaches to corporate governance: a framework, principles-based
approach as in the United Kingdom; or a regulatory, rules-based approach as in the United States. Most
developed countries follow one of these two systems, which are usually supported by the relevant stock
exchanges that exist in a country.

Whichever system is used, there is an element of required conformance. In the UK this is through
corporate governance codes developed from the initial work of Cadbury. In the US the required corporate
governance principles have been covered by legislation introduced by the Sarbanes–Oxley Act of 2002.
The ‘comply or explain’ concept is the trademark of corporate governance in the UK. This approach has
been in operation since the Code’s beginnings and is at the core of its flexibility.

Both companies and shareholders support this approach and it has been widely respected and copied
around the world. The Code is not an inflexible set of rules. It comprises principles (main and supporting)
and provisions. The Stock Exchange Listing Rules require companies to apply the main principles and
provide a report to shareholders as to how they have done this.
Approaches

A rules-based approach instils the code into law with appropriate penalties for transgression.

A principles-based approach requires the company to adhere to the spirit rather than the letter of
the code. The company must either comply with the code or explain why it has not through reports
to the appropriate body and its shareholders.
The relative merits of a framework approach to corporate governance versus a regulatory approach
Thank you!!!