Question

Corporate governance, statistical analysis and measures of variance are all huge subject areas. Summarise the principles and practices pf corporate governance plus the process of statistical analysis and measures of variance in terms of financial management as briefly as possible. Conduct independent research as needed. 250 words

Answer 1

The following are the principles of Corporate Goverance:

Principle 1:Lay solid foundations for management and oversight:

Companies should recognise and disclose the respective roles and responsibilities of board and management.

The company’s framework should be designed to:

• enable the board to provide strategic guidance for the company and effective oversight of management.
• clarify the respective roles and responsibilities of board members and senior executives inorder to facilitate board and senior executives’ accountability to both the company and its shareholders.
• ensure a balance of authority so that no single individual has unfettered powers.

Principle 2:Structure the board to add value

Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

• has a proper understanding of, and competence to deal with, the current and emerging issues of the business
• exercises independent judgement
• encourages enhanced performance of the company
• can effectively review and challenge the performance of management.

Ultimately the directors are elected by the shareholders. However the board and its delegates play an important role in the selection of candidates for shareholder vote.

Principle 3:Promote ethical and responsible decision-making

Companies should actively promote ethical and responsible decision-making

To be successful, companies need to have regard to their legal obligations and the interests of a range of stakeholders including shareholders, employees, business partners, creditors, consumers, the environment and the broader community in which they operate.

Companies should:

• clarify the standards of ethical behaviour required of the board, senior executives and all employees and encourage the observance of those standards
• comply with their legal obligations and have regard to the expectations of their stakeholders.
• publish the policy concerning the issue of board and employee trading in company securities and in associated products including products which operate to limit the economic risk of those securities.

Principle 4:Safeguard integrity in financial reporting

Companies should have a structure to independently verify and safeguard the integrity of their

financial reporting

• review and consideration of the financials statements by the audit committee
• a process to ensure the independence and competence of the company’s external auditors.

Such a structure does not diminish the ultimate responsibility of the board to ensure the integrity of

the company’s financial reporting.

Principle 5:Make timely and balanced disclosure

Companies should promote timely and balanced disclosure of all material matters concerning the company.

• all investors have equal and timely access to material information concerning the company -including its financial position, performance, ownership and governance
• company announcements are factual and presented in a clear and balanced way. “Balance” requires disclosure of both positive and negative information

Principle 6:Respect the rights of shareholders

Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

Companies should empower their shareholders by:

• communicating effectively with them
• giving them ready access to balanced and understandable information about the company and corporate proposals
• making it easy for them to participate in general meetings.

Best Practices :

Companies are encouraged to use the guidance provided as a focus for re-examining their corporate governance practices and to determine whether and to what extent the company may benefit from a change in approach, having regard to the company’s particular circumstances.

There is little value in a checklist approach to corporate governance that does not focus on the particular needs, strengths and weaknesses of the company. The Council recognises that the range in size and diversity of companies is significant and that smaller companies may face particular issues in following all Recommendations from the outset. To name a few is listed below:

Disclosure requirements

Under ASX Listing Rule 4.10, companies are required to provide a statement in their annual report

disclosing the extent to which they have followed these good practice Recommendations in the

reporting period.

What disclosures are necessary?

It is only where a Recommendation is not met or where a disclosure requirement is specifically

identified that a disclosure obligation is triggered. Each Recommendation is clearly identified as such.

What is the disclosure period?

The change in reporting requirement applies to the company’s first financial year commencing after 1July 2007.Companies are encouraged to make an early transition to the revised good practice Recommendations.

Process of statistical analysis and measures of variance in terms of financial management

Operating a business of any size is a complex undertaking. In addition to day-to-day responsibilities, the company must engage in long-term planning, develop new products or services, streamline production or delivery and locate new customers while serving existing clients.

So statistics plays a vital role in the following decision making process.

• Statistical analysis of a representative group of consumers can provide a reasonably accurate, cost-effective snapshot of the market with faster and cheaper statistics than attempting a census of very single customer a company may ever deal with.
• Statistics can provide objective goals with stand-alone figures as well as hard evidence to substantiate positions.For example,it is easier to convince board members of the value of international expansion by providing data on the available market for products in a given country.
• Statistics can point out relationships. A careful review of data can reveal links between two variables, such as specific sales offers and changes in revenue or dissatisfied customers and products purchased.
• It helps in quality by programs like Six Sigma or Lean Manufacturing, understands the necessity for statistics.