Corporate Governance, Ethics and Business Law
Corporate Governance: Accountability and Control
The agency problem and its remedies
Governance exists because ownership is separated from control. Know the mechanisms that mitigate agency costs: independent boards, separation of chair and CEO, board committees (audit, remuneration, nomination, risk), disclosure and transparent reporting, external audit, and the market for corporate control. Know the competing theories too: shareholder primacy, stakeholder theory, stewardship theory and resource-dependency.
Codes and frameworks
OECD Principles cover shareholder rights, equitable treatment, stakeholders' role, disclosure and transparency, and board responsibilities. Principle-based codes use comply or explain; rules-based regimes such as Sarbanes-Oxley use comply or else. For internal control, COSO's five components are control environment, risk assessment, control activities, information and communication, and monitoring. The board - not the auditor - owns the control system.
Traps
- Independence is about relationships, not job titles: former employees, advisers, close family and long tenure all undermine it.
- The audit committee comprises independent non-executives with recent relevant financial experience; it appoints and monitors the auditor but does not perform the audit.
- NEDs scrutinise and challenge; they do not run the business.
- Scenarios are usually failed by tone-at-the-top, a dominant CEO, weak challenge or misaligned incentives - not simply 'bad accounting'.
Rule of thumb: for any governance scenario ask who is accountable, who is genuinely independent, what was disclosed, and who was incentivised to look away.
Ethics and Business Law: Reasoning and Rules
Ethical reasoning, not moralising
Show you can apply a framework: utilitarianism (consequences, greatest good), deontology (duties and rules - Kant's categorical imperative; never treat people merely as means), virtue ethics (what a person of integrity would do) and justice/fairness. In professional scenarios use a structured model: establish the facts, identify the ethical issues and stakeholders, weigh alternatives against principles and the code, decide, act and reflect. The fraud triangle - pressure, opportunity, rationalisation - explains why controls and culture are both needed.
Legal essentials
Contract requires offer, acceptance (communicated and mirroring the offer), consideration, intention to create legal relations and capacity. An invitation to treat (advertisement, shop display, invitation to tender) is not an offer. Know agency (actual, implied and apparent authority), negligence (duty, breach, causation, damage), employment fundamentals, consumer protection, and the offences of fraud, bribery, insider dealing and money laundering, including suspicion-reporting and failure-to-prevent duties.
Traps
- A utilitarian answer often sounds 'practical' but ignores rights; the examiner wants the named theory and its limitation.
- Confidentiality versus whistleblowing: escalate internally first; external or public disclosure is a last resort reserved for severe or unaddressed matters.
- Bribery can be an offence even where the act happens abroad, and small facilitation payments are not a general defence under modern statutes.
Rule of thumb: where a fact pattern shows pressure and secrecy, name the ethical threat (self-interest, intimidation, self-review) and the safeguard that answers it.