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92 Cards in this Set

  • Front
  • Back

Group think?

Ignore alternatives and results in poor decisions

Directors must be...

Qualified and independent

Role of the Board Chair

Foster open climate for decision making. Support dissenters, introduce external expertise and assigning critical evaluator

Directors' roles:

1. As a group? (2 roles)

2. As individuals?

1. Provide oversight/stewardship and set strategy. Also hiring the right CEO.

2. Support and counsel the CEO

Governing law for Canadian Corporations?

Canadian Business Corporations Act

Role of shareholders?

Elect Directors and appoint auditors. Little say in day-to-day operations

Role of auditors?

Provide opinion on financial statements

What is agency relationship?

Arrangement in which one entity legally appoints another to act on its behalf

Primary agency relationship for financials is between...?

Managers and shareholders

What is the agency problem?

When management is motivated by self-interest rather than maximizing shareholder value.

What is a fiduciary duty?

Legal and ethical responsibility owed

Who do Directors owe fiduciary duty to?

The company, not the shareholders

What is duty of care?

Directors must exercise care, diligence, and skills that a prudent person would

During bankruptcy, what are Directors personally responsible for?

Wages and taxes owing

What is right of reliance?

Directors can rely on auditors and lawyers' advice

What is business judgement rule?

Courts will not hold Boards responsible for decisions with bad outcomes if they can demonstrate that they followed good processes and exercised good business judgement.

Directors must act prudently and independently. Taking time to make decisions

How can Directors minimize liability?

By documenting internal controls, camera sessions with consultants, and taking field trips to see company facilities

What protects Directors from legal action?

Bylaws, indemnification agreements, and Directors & Officers insurance

Generally speaking, how should board members act with the company's operations?

"Nose in, fingers out"

In what case might Directors have to get involved in day-to-day operations?


What are companies required to "comply or explain"?

Gender diversity on the board (women)

Who is the strategy guru?

Michael Porter

According to the strategy guru, how can a company outperform its rivals?

By delivering greater value or comparable value at a lower price. Cost vs. Differentiation.

What is strategic positioning?

Performing different activities from competitors

What is operational effectiveness?

Performing similar activities to competitors better

What results from performing similar activities more effectively than competitors?

Cost advantage

What program should companies consider that respond to environmental sustainability?

Corporate Social Responsbility

What license do companies need to operate?

Social license

What are the triple bottom line factors?

Economic, social, and environmental

CSR programs can be either...?

Responsive or strategic

What is the board's talent management function?

Ongoing evaluation of CEO's performance, succession planning, and reviewing other prospective leaders in company

Who can be included in the CEO's evaluation process?

The CEO, direct reports, or board members

Who should lead CEO's evaluation?

Human Resources and compensation committee

When should CEO evaluation begin and end?

Begin the day he/she is hired and ongoing

What should the CEO evaluation include?

Quantitative measures: ROA, cost/ton, and lost-time accidents

Qualitative: leadership and motivation

Who does the board approve compensation for?

The CEO, senior executives, and succession planning

What is the Human Resources and Compensation Committee responsible for?

Reviewing HR strategy, approving compensation for senior executives, and approving amendments to the peer group

What should peer groups be similar in?

Size, industry, and geographic location

What performance measures should be included in a compensation plan?

Financial, operating, and marketing metrics

What does short-term compensation consist of?

Salary and bonus

What does long-term compensation consist of?

Stock options, deferred shares, and pension plans

Senior Executives are also entitled to...?

SERP - Supplementary Executive Retirement Plan

What is say-on-pay?

Shareholders can vote on compensation. Just advisory.

Aside from compensation, what else should HR and Compensation Committees discuss about?

Human Capital

Compensation oversight is provided by whom?

Regulators (like Securities and Exchange Commission) and influencers (like Canadian Coalition for Good Governance)

What compensation structure should be utilized to align management and shareholder interests?

Performance based compensation

Who provides guidance on ethical principles?

Board of Directors

Agency cost?

The extent that management deviates from shareholders' best interests

Why should Directors and Officers not enter into arrangements in which they have personal interest?

Conflict of interest

How does strategic positioning arise?

Choice of activities and the way in which they are performed

What can CSR programs address?

Generic social issues that would apply to everybody, the impact of the entire value chain on society, as well as social dimensions of a competitive context

What should the board approve for the CEO?

Target pay and performance levels

What are management's responsibilities?

Design salary and incentive plans, to implement retention plans for senior executives, and to provide oversight of corporate culture and employee engagement

What happens if performance based pay is successful?

It reduces company's cost of capital

Purpose of ERM program?

Optimize enterprise value

Besides the obvious legal and financial risks,an ERM program should take into account...

Security, reputation and politics

In order to mitigate risk, companies should identify...?

· thelikelihood of occurrence of various risk factors, and the size of any potentialloss.

Once risk factors have been identified...?

· T they canbe retained without mitigation if appropriate, reduced through emergencypreparedness or transferred by buying insurance.

What could an effective ERM program do?

Increase company's credit rating and reduce cost of capital

What does a company's risk capacity depend on?

type of industry, the type of assets, and itssize.

Responsibility for ERM could be centralized in...?

· a Chief RiskOfficer or diffused throughout the organization

Members of the Audit Committee should be...?

Financially literate

Chair of the Audit Committee should be an...?


What is the audit committee responsible for?

· ensuringthat there are appropriate internal controls and risk management, as well as forfinancial reporting and the external audit.

When is revenue typically only recorded?

When there is an exchange of goods or services for cash

When is revenue recognized?

When delivery has occurred (services have been rendered), when the price is fixed or determinable, and when collectability is reasonably assured

What problems arise when companies are forced to restate their financial statements?

Investors made investment decisions on previous figures and calls company's credibility into question

Restatements can arise because of..

aggressive accounting (Livent case), intentional deception (enron) or honest error

What must the audit committee understand?

processesand controls that management is using.

What happens if an error creeps into the financial statements?

Due diligence defense - directors must be able to show that theyconducted a reasonable investigation of the document before it was released tothe public.

What does the fraud triangle include?

motive, opportunity, rationalization

What causes fraudulent misconduct?

Pressure to meet business targets, lack of resources and cutting corners, or by employees' fear of losing their jobs (Knowlton Realty)

How can fraud be reduced/eliminated?

Developing written policies and procedures, and creating a culture of honesty in the company

How can a culture of honesty be created?

Maintaining positive workplace environment and taking action in response to actual or suspected fraud

Where should employees who suspect fraud report it?

Supervisor, legal department or ethics hotline

What kind of companies have an anonymous reporting mechanism or whistleblower hotline?

Progressive companies

Who is responsible for detecting fraud?

Everyone. Audit committee, auditor and management

What is the response to an incidence of fraud?

Investigation and remediation if appropriate

What is the best defense to unwanted takeover?

Maintain the company's financial independence - keep debt manageable

How should companies be prepared for a possible takeover?

Identify strategic buyers in advance

What should a company do when a legitimate takeover offer is received?

1. Convene a special meeting of the board and probably create a special committee - one that is independent of management

2. Develop a plan to communicate with major shareholders

How should companies be valued?

Using discounted cash flow models. In a pinch, look at peer group earnings or cash flow multiples

What is the final step when a company is successful in making a takeover offer?

Take up and pay for shares that have been tendered

What is the role of the board in takeover situations?

Get the best value possible under the circumstances

What does Roger Martin think about using compensation to align management and shareholders?

It's not working. Recommends focusing on customers first (shareholders last), and letting results speak for themselves over a period of time

Whom does corporate governance also apply to?

Crown and family-owned corporations, community and professional associations, post-secondary institutions and not-for-profit organizations

What characteristics do good directors need?

experience and good judgment, understand difference between role of board (oversight) and role of management (implementation)

Who does an effective board work closely with?

Management, but maintains independence

What should you do before you join the board of a corporation?

Ask lots of questions and make sure you're satisfied with the answers

When should you resign from the board of a company?

When it is on the verge of bankruptcy or when you feel that you no longer make a positive contribution

What should you do if you resign from a board and feel that there was some legal or ethical challenge facing the company and they were not addressing it?

Make a public statement

What is your responsibility as a director?

Tone at the top