Governance:

Directors

(a)Chairman

Running the board and setting its agenda

Ensuring the board receives accurate and timely information

Ensuring effective communication with shareholders

Ensuring sufficient time is allowed for discussion of controversial(????)issues

Taking the lead in board development

Facilitating???? board appraisal

Encouraging active engagement?????? by all the members of the board

Reporting in and signing off accounts

(b) CEO

Business strategy and management

Investment and financing

Risk management

Establishing the company’s management

Board committees

Liaison with stakeholders

(c) Division of responsibilities

CEO run the company, Chairman run the board and take the lead in liaising withshareholders

Chairman carries the authority of the board, CEO has the authority that isdelegated by the board. Unfettered powers is concentrated into on pair of hands

Avoiding conflict of interest

Board can’t make the CEO accountable for management if it is led by CEO

Board is more able to express its concerns effectively by providing a point ofreporting for the NEDs

Chairman is responsible for obtaining the information that other directorsrequire to exercise proper oversight(??) and monitor the organizationeffectively

Compliance with governance best practice and hence reassures shareholders

(d) Roles of NEDs

Strategy. Contribute to, and challenge the direction of, Strategy

Scrutiny. Scrutiny the performance of executive management in meeting goals andobjectives and monitor the reporting of performance.

Risk. Financial information is accurate and financial controls and systems ofrisk management are robust.

People. Determining appropriate levels of remuneration for executives, and arekey figures in the appointment and removal of senior managers and in successionplanning

Contribution of NEDs:

Better balanced board(power, skills and experiences)

Representing shareholder interests(put shareholders’ viewpoint in board discussion,)

Monitoring function(monitors risks, controls and operations effectively, theperformance of executive directors)

(e) Advantages of NEDs

External experience and knowledge which executive directors do not possess.

Provide a wider perspective???????? than executive directors

A comfort factor for third parties such as investors or creditors

Certain roles (father confessor(??????): being a confidant???? for the chairmanand other directors; oil-can: intervening to make the board run moreeffectively; high-sheriff??????: if necessary taking steps to remove thechairman or CEO)

Full board members who are excepted to have the level of knowledge that fullboard membership implies.

(f) Problems of NEDs

Lack independence (no business, financial or other connection;Cross-directorships; should not take part in share option schemes and theirservice should not be pensionable??????; Appointments should not be for aspecified term and reappointment should not be automatic; Procedures shouldexist to ensure NEDs take independent advice)

Prejudice???? and against widening the recruitment of NEDs

High-calibre NEDs may gravitate(???) towards the best run companies

Have difficulty imposing their views upon the board.

Not enough emphasis is given to the role of NEDs in preventing trouble

Limited time

Damage company performance by weakening board unity and stiflingentrepreneurship????????

(g) Remuneration package

Basic salary(experience, market rate)

Performance related bonuses(transaction bonuses; loyalty bonuses)

Shares

Share options (align???? management and shareholder interests, particularlyheld for a long time)

Benefits in kind (transport??????/ health provisions / life assurance /holidays / expenses / loans)

Pensions(???)

(h) Remuneration policy

Pay scales

Proportion of different types of reward

Period

Be related to measureable performance

Balance between short and long-term performance elements

Transparency

?i?Responsibilities of the board

Formal schedule????? of matters specifically reserved?????? to it for decisionat board meetings

Monitoring the CEO

Overseeing strategy

Monitoring risks, control systems and governance

Monitoring the human capital aspects of the company, eg succession, morale,training

Monitoring potential conflicts of interest

Ensuring that there is effective communication of its strategic plans.

Nomination Committee

(a)Consist mainly of NEDs, to consider:

The balance between executive and independent NEDs

The skills, knowledge and experience possessed by the current board

The need for continuity and succession planning

The desirable size of the board

The need to attract board members from a diversity or backgrounds

(b)Induction

Build an understanding of the nature of the company, its business and itsmarkets;

Build a link with the company’s people

Build an understanding of the company’s main relationship including meetingswith auditors

(c) Continuing professional development

Extend their knowledge and skills continuously;

Concentrate on the role of board, obligations and entitlements of existing directorsand the behaviors needed for effective board performance.

Audit committee

(a)Function

Improve the quality of financial reporting

Reduce the opportunity for fraud

Enable the NEDs continue an independent judgement and play a positive role

Help the finance director (raise issues of concern; get difficult things done)

Strengthen the position of the external auditor

The External auditor can assert(??) his independence when dispute withmanagement

Strengthen the position of the internal auditor

Increase public confidence

(b) Review of financial statements andsystems

Considering performance indicators and information systems that allowmonitoring of the most significant business and financial risks.

(c) Liaison with external auditors

Being responsible for the appointment or removal of the external auditors

Any other threats to external auditor independence (non-audit service; conflictof interest)

Discussing the scope of the external audit

Acting as a forum for liaison between the external auditors, the IAs and thefinance directors

Helping the external auditors to obtain the information

Making themselves available to the external auditors for consultant

Dealing with any serious reservations.

(d)Review of internal audit

Standards including objectivity, technical knowledge and professional standards

Scope including how much emphasis is given to different types of review

Resources (enough hours, personal technical and skills)

Reporting arrangements

Work plan (review of controls and coverage of high risk areas)

Liaison with external auditors

Results

Relate to external auditor (increase the independence of external auditor; actas liaison person to facilitate the communication between the executivedirectors and external auditors; Act as coordinate the work between externalauditor and internal auditor; To monitor the independence and quality of workof external auditor)

Related to internal audit function (To approve the appointment ortermination???? of appointment of the head of internal audit; To review the workof the internal audit function)

(e)Review of internal control

Monitor the adequacy of internal control systems in mitigating???? risks(control environment, management’s attitude)

Cover legal compliance and ethics

Address the risk of fraud (report fraud, frand to be investigated)

Reviewing the company’s statement on internal controls

Consider the recommendation of the auditors in the management letter andmanagement’s response

Active supervisory role (review major transactions)

(f)Review of risk management

Confirming a formal policy in place for risk management, risk management isupdated to reflect current positions and strategy.

(g) Independence of internal auditcommittee:

Only be effective if NEDs are independence.

Crucial to discuss the management’s competence and judgement with the externalauditors, if not, they may feel loyalty towards management

Investors’ confidence

Reporting of the internal audit committee need the NEDs’ independence,otherwise influence the integrity of the auditors.

Internal auditors/external auditors comparison of role in the context ofcorporate governance

(a)Assess the need for internal audit

Scale, diversity and complexity of the company’s operations

Number of employees

Cost-benefit considerations

Changes in organizational structure

Changes in key risks

Problems with internal control systems

Increased number of unexplained or unacceptable events

(b)Role of internal audit function

Independent checking, examination and evaluation the internal control systemestablished by executive director.

Internal control over financial reporting

FS whether show true and fair

Internal control over operation

Operational information(management information)

Review of “3E”

Review of compliance with laws and regulations

Review of safeguarding of the organization’s assets

Review of implementation of corporate goals and objectives

Review of significant risks to the organisation, monitoring risk managementpolicy and risk management strategies.

(c) Advantages of appointing internalauditor from outside the company:

External appointment would bring detachment and independence (reduce or avoidsthe independence and familiarity threats)

An external appointment would help with independence and objectivity. Own nopersonal loyalties nor ‘favours’(??) from previous positions. Have no personalgrievances nor conflicts with other people. (Increase the confidence ofinvestors)

Some benefit would be expected from the “new broom effect’ in that theappointment would see the company through fresh eyes .(bring a fresh pair ofeyes to the task)

Come in with new ideas and expertise gained from other situations

The possibility exists for the transfer of best practice in from outside.(bestpractice and current developments can be introduced)

(d) Review of the risk management

Identification. Risks comes and go with the changing nature of businessactivity, and with the continual change in any organization’s environment.

Assessment. The probability of the risk being realized; the impact or hazard.

Review. Analyses the controls that the organization has.

Report. A report on the review is produced and submitted to the principal.

(e)Social and environmental audit: Why

There is a growing belief that environment issues represent a source of risk interms of unforeseen liabilities, reputational damage, or similar.

The ethical performance of a business, such as its social and environmentalbehaviour, is a factor in some people’s decision to engage with(??????) thebusiness in its resource and product markets.

An increasing number of investors are using social and environmentalperformance as a key criterion for their investment decisions.

(f)Environmental audit: what

Is a systematic, documented, periodic and objective evaluation of how well anentity, its management and equipment are performing, with the aim of helping tosafeguard the environment by facilitating(??) management control of environmentpractice and assessing compliance with entity policies and externalregulations.

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