Fins3626 Week 3 Tutorial
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FINS3626 WEEK 3 TUTORIAL 1. What are the pros and cons of rules-based and principles-based approaches to corporate governance? Is one approach better than the other? Rules based governance is a set of established rules that must be followed when regulating a corporation. The advantages are: certainty and predictability ease of compliance high transparency The disadvantages are: high costs to draft rules and update excessive litigation Principles based regulations are broad guidelines that corporations use to achieve their outcomes. It involves best judgement by executives and management. The advantages are: greater flexibility and freedom for management more innovative and competitive structure closer fit to meeting objectives The disadvantages are: training costs and innovative entrepreneurial skills required management goals may not align with shareholders; need incentive goals more challenging for supervisors and the supervised 2. Refer to the ASX Corporate Governance Recommendations: what are the eight principles of corporate governance recommended by the ASX? Any incentive for management to willingly introduce these arrangements? Lay solid foundations for management and oversight * Structure the board to add value Act ethically and responsibly Safeguard integrity in corporate reporting * Make timely and balanced disclosure Respect the rights of security holders Recognise and manage risk Remunerate fairly and responsibly * 3. Would you expect regulation and arrangements regarding corporate governance to be different or similar in different countries? Consider the insider vs. outsider systems. Insider: close relationship between insider shareholders and managers Outsider: managers control firms but are owned by outside/separate financial entities
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Transcript of Fins3626 Week 3 Tutorial
FINS3626 WEEK 3 TUTORIAL1. What are the pros and cons of rules-based and principles-based approaches to corporate governance? Is one approach better than the other?Rules based governance is a set of established rules that must be followed when regulating a corporation. The advantages are: certainty and predictability ease of compliance high transparencyThe disadvantages are: high costs to draft rules and update excessive litigation Principles based regulations are broad guidelines that corporations use to achieve their outcomes. It involves best judgement by executives and management.The advantages are: greater flexibility and freedom for management more innovative and competitive structure closer fit to meeting objectivesThe disadvantages are: training costs and innovative entrepreneurial skills required management goals may not align with shareholders; need incentive goals more challenging for supervisors and the supervised2. Refer to the ASX Corporate Governance Recommendations: what are the eight principles of corporate governance recommended by the ASX? Any incentive for management to willingly introduce these arrangements? Lay solid foundations for management and oversight * Structure the board to add value Act ethically and responsibly Safeguard integrity in corporate reporting * Make timely and balanced disclosure Respect the rights of security holders Recognise and manage risk Remunerate fairly and responsibly *
3. Would you expect regulation and arrangements regarding corporate governance to be different or similar in different countries? Consider the insider vs. outsider systems.Insider: close relationship between insider shareholders and managersOutsider: managers control firms but are owned by outside/separate financial entitiesIt should be similar because the regulations are dependent on corporate structure, not different countries.
4. What are the issues faced by the ASIC? What do you think is the main problem? Can you think of the solutions?
