Ethics and Governance Governance 2

Board of Directors: Executive Directors Employed by the company in managerial role Intimate knowledge of company operations Executive compensation is primary source of earned income and creates potential conflict of interest

Board of Directors: Non-Executive Directors Not a company employee Contribute to strategic planning Evaluate the performance of executive directors Board compensation is not primary source of earned income Majority of NEDs should be independent of company

Chairman of the Board Runs the board Ensures availability of accurate, timely information Holds meetings with NEDs Chairs the annual general meeting Ensures an independent board presence

Chief Executive Officer Runs the company Reports to the board of directors Implement policies for strategy execution Implement adequate control systems Build an effective management team

Approaches to Corporate Governance: Rules-Based Approach Example: Sarbanes-Oxley Act 2002 (USA) Regulation-based governance rules Assumes “one size fits all” Leads to a “checklist” mentality Can be overly burdensome for small companies

Approaches to Corporate Governance: Principles-Based Example: Cadbury Code 1992 (UK) Guidance rather than law Companies use “comply or explain” principle Allows flexibility for size and circumstances The market, not the law, evaluates compliance