Notesale: Turn your study into money

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HULT International Business School
ACC440 - Corporate Governance (Prof
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Willcox)
Prepped Answers for the Questions of the Final Exam

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In short, it is a method of governing the company like a
sovereign state, instating its own customs, policies and laws to its employees from the highest to the lowest levels
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Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for
the importance of solid corporate governance
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A company can also
hold meetings with internal members, such as shareholders and debtholders - as well as suppliers, customers and
community leaders, to address the request and needs of the affected parties
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Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as
shareholders, management, customers, suppliers, financiers, government and the community
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Salomon Ltd)

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​Corporate Power refers to the power and authority of a Business Entity (not just a
corporation), under the terms of its Governing Documentation and applicable Law, to enter into, and become bound
by, the terms of any particular transaction
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What was the response of the UK Bullock Committee Report (1977)?
The report of the committee of inquiry on industrial democracy (1977) and the research papers (1976) reflected the
first serious corporate governance study in Britain
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It proposed
a continuation of the unitary board, but with workers representative directors (Trade Unions)
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What did the Corporate Report (1975) from the UK Accounting Standards Committee
propose?
It proposed that all economic entities report publicly and accept accountability to all those whose interest were affected
by the directors decision
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“A corporate entity must report publicly and must be accountable of their actions” (this rule was not implemented
because it was seen as eroding managerial power, so recommendations were made to report more to stakeholders
that are primarily affected by decisions
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503 part
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Name some corporate collapses in the 1980s that led to the first studies of CG?
Book: Tricker 503 p
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3bn amid claims of gross mismanagement
and fraud
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Polly Peck was one of a few
scandals which prompted the 1991/2 Cadbury Committee and Code on Corporate Governance, internationally the first
of its type
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BCCI collapse - The Luxembourg-registered Bank of Credit and Commerce International (BCCI) was founded in 1972
by Agha Hasan Abedi, with HQs in Karachi and London
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Following regulatory
concerns and investigations BCCI was found to be established fraudulently, trading illegally on a vast scale, including
money-laundering, and in 1991 regulators raided and shut its operations in seven countries
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The BCCI scandal was a major prompt, along with Polly Peck's collapse, for the
19991/2 UK Cadbury Committee on Corporate Governance
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Amusingly, Saunders later gained early release from prison due to contracting the incurable
Alzheimer's disease, from which later he made a miraculous full recovery
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Exxon Valdez Disaster - This was a huge oil spill off Alaska when the Exxon Valdez tanker ran aground in 1989,
resulting in protracted litigation and fines of hundreds of millions for ExxonMobil
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Others:
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Carrian Group - 1983
Texaco - 1987
Qintex - 1989
Lincoln Savings and Loan Association - 1989

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25

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Recommendations: do not give too much power to one director, Add non-executive directors
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The final report 'The financial aspects of corporate governance' (usually known as the Cadbury Report) was published
in December 1992 and contained a number of recommendations to raise standards in corporate governance
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What were the major recommendations of the Cadbury Report?
Book: Tricker page 503 p
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5 chapter 1
The creation of board level audit committees (monitor and control internal happenings), remuneration committees
(monitor how board members are compensated), and nomination committees (nominate directors fit for position), with
independent outside directors; the separation of the board chairman from the CEO ​(cf
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Key Recommendations:
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The boards of all listed companies should comply with the code of best practice set out by the
committee
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The listed companies reporting in respect of years ending on or after 31 December, 1992, should make
a statement about their compliance with the code in the report and accounts and give reasons for any
areas of non-compliance

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