Professional Documents
Culture Documents
The audit committee is the fastest way to get an appreciation of the business.
Many subjects covered quickly at the board level are discussed in depth in the
audit meeting.
The objectives of the management and the audit committee are the same:
provide accurate financial statements with transparent disclosure. There may
be differences of opinion from time to time but everyone moves in the same
direction with tight deadlines that force decisions.
The audit committee has the advice of the outside auditors who not only
opine on the companys financials but provide context by discussing the
practices of their other clients.
In presenting the financials to the audit committee the finance team has to
justify its conclusions, providing the committee members with great insight
into the thought process of management.
Finally, audit committee meetings are large and attended by a broad
representation of the finance staff which allows the committee to hear from
people who are the possible successors to senior financial management.
By contrast the compensation committee is very different in subject matter and
style.
Progress question :
Question 7 : Explain the difference between the King I and King II report :
The King I report :
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Incorporated a code of corporate practices and conduct that looked beyond the
corporation itself , taking into account its impact on the larger community.
Took more integrated approach to the topic of corporate governance , recognizing the
involvement of all the corporations stakeholders - the shareholders , customers ,
employees , vendor partners and the community in which the corporation operates in
the efficient and appropriate operation of the organization .
Formally recognized the need to move the stakeholder model forward and consider a
triple bottom line as opposed to the traditional single bottom line of profitability .
Took an approach known as comply or explain which means that companies should
assess the guidelines and apply them in a manner that is appropriate ; if they choose not
to comply they should publicly explain why not .
Question 8 : Explain the difference between comply or explain and comply or else :
Comply or explain :
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The comply or explain method is a set of guidelines that require companies to abide by
a set of operating standards or explain why they choose not to.
Comply or Else :
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The comply or else method is a set of guidelines that require companies to abide by a
set of operating standards or face stiff financial penalties.
Answer: The CEO can pursue policies that are focused on maintaining a high
share price in a short-term (to maximize the price he gets when he cashes in all
the share options that his friends on the board gave him on the last contract)
without any concern for the long-term stability of the organization-after all, there
will probably be another CEO by then.
Question 12: Is it unethical to populate your board of directors with friends and
business acquaintances? Why or why not?
Answer: It is unethical because when you populate your board of directors with
friends and business acquaintances, you are covered by your own benefit.
Moreover, the talent employees may not come from business acquaintances, they
are formed by recruiting, training and challenging. Acquaintances can make the
board of director vulnerable and inexplicit. Its not fair for every single member
who is involved in your company.
Progress question
Question 5
Which two scandals greatly increased the attention paid to the 1992 Cadbury report?
The company was accused of fraud and money laundering. At the meantime, it had owed more than 10
billion pound to its creditors. BCCI lost money for inefficient lending operations and currency dealings.
Moreover, after investigation, BCCI was believed to have been involved with terrorists money and many
criminal customers like drug dealer, weapon producers, etc.
After his death in 1991, his publish company had financial difficulties before announced bankrupt in the
following years. With high debt and borrow 767 million from worker pension funds, he was broke.
Maxwell had promised the same asset as collateral property that you promise to give if you cannot pay
the loan. In other word, Maxwells wealth was more financial illusion that reality.
Question 6
Explain the right balance that Cadbury encourages companies to pursue.
As mentioned in the text, right balance is between meeting the standards of corporate governance
now expected of them and retaining the essential spirit of enterprise.
In other words, they could maintain the necessary degree of oversight needed without stifling the
creativity and entrepreneurial spirit needed to perform effectively in a competitive market.