Corporate Governance: Principles, Codes and Accountability
Core concepts
Corporate governance is the system by which companies are directed and controlled. Candidates must distinguish shareholder and stakeholder models, explain the agency problem between dispersed owners and managers, and know the roles of the board, its committees and the annual general meeting. Learn the building blocks of the main codes: separation of chair and chief executive, independence of directors, audit, remuneration and nomination committees, and the comply-or-explain disclosure model. Understand the difference between rules-based regimes (statutory mandates such as certification and listing rules) and principles-based regimes (voluntary codes backed by disclosure).
Traps in questions
- Comply-or-explain is not comply-or-else: a departure is acceptable if disclosed and justified; it is not automatically a breach.
- Independence is not the same as non-executive: a long-serving or family-connected non-executive may fail independence tests.
- The chair should not chair the audit committee in most codes, and the chief executive should not sit on it.
- One-tier versus two-tier boards: supervisory boards in two-tier systems cannot manage the company.
- Shareholders do not run the company; they appoint directors and reserve matters such as mergers and director pay votes.
Worked rule of thumb
Use the four-question test for any governance scenario: Who decides? Who monitors? Who is accountable to whom? What is disclosed? A candidate who answers all four usually reaches the right option, because distractors typically confuse monitoring with management or disclosure with enforcement.