FIA Paper FAB - Sessions6-8

Syllabus Heading B
Sessions 6-8
Business Organisation Structure,
Functions and Governance
Informal Organisations
Informal organisations exist alongside the formal
structures and systems previously discussed.

The informal organisation is loosely structured,
very flexible and spontaneous embracing
practices and mechanism such as:
Social groupings e.g. cliques
Grapevines and informal communications
Alternative behaviours to the formal structures
Power and influence structures outside the formal
command chains

Informal Organisations
While management of the formal organisation may allow the
informal organisation to develop, and may even interact
with it, they must never allow it to take over the formal
organisation or the authority and control it possesses.
They should ensure that the informal organisation does not
alter the goal direction of the formal organisation.

Informal organisations may provide some
benefits:
Cooperation
Speed
Sharing of knowledge
Employee commitment
Responsiveness
Session #6
Organisational Structure
Considering Structure
Why is structure necessary?

To create a controllable network of individuals, groups
and teams;

To allow greater coordination & monitoring of
organisation activities and functions;

To allocate authority and create a framework for
delegation, accountability and responsibility;

To enable a useful flow of work, resources and information
through communication following clear reporting lines;

What influences structure?
Organisational goals and objectives as an entire unit and
as departmental units;

Specific task and activities of the organisation;

Organisational size, complexity and formalisation;

Skills, abilities and expectations of organisational human
resources;

Internal organisational principles, culture and
environment.

Organisational Layers
Managerial hierarchy and activity has been
proposed by Anthony (a management writer) has
being classified:
Strategic level management most senior directors and
management, handling the policy making, and providing
guidance and direction on a global level;

Tactical level management middle management and
technical staff, concerned with determining how to get the
job done, through resource allocation, innovation and
creation of detailed plans;

Operational level management line supervisors and the
work operatives ensuring the routine activity of providing
the good or service is achieved based on the tactical plans
and guidance provided by middle management.

Organisational Hierarchy - strategic
Strategic level management concerns itself with the
global picture for the organisation, devising corporate
goals and strategies.

Goals and objective answer the question: where do we
want to be and when? optional directions for
company

Strategies answer the question: how are we going to
get there? alternative approaches to achieving goals

Strategic level management must assess these questions
and select the most appropriate options.

Organisational Hierarchy - tactical
Tactical level management and staff, analyse the
selected strategies and assess what the inputs,
resources and timelines must be for achievement
of stated goals, based on the strategic guidance
given

They answer the question what do we require
and when? in order to move the business step by
step closer to where it needs to be

Its focus will be developing detailed operational
plans and forecasting resource needs, while being
responsible for the control function of the
organisation.

Organisational Hierarchy - operational
Operational level management and staff, carry the
daily tasks of getting the job done through effective
and efficient implementation of the tactical plans.

Their functions and responsibilities provide the
answer to - are we there yet? Are we facing any
challenges or problems? what can we or must
we do different? all the while providing feedback
and guidance to the tactical team in terms of
controlling performance.

This level is very task oriented.
Organisation Theories - Fayol
Traditional and classical organisation structure was
linked to the principles of division of labour and
hierarchy of authority:

Division of work;
Authority & responsibility;
Scalar chain;
Unity of command;
Unity of direction;
Subordination of individual interests

Organisation Theories - Mintzberg
One of the many prolific writers on the structuring
of organisations was Mintzberg. see diagram

In his writings and theories he suggested that every
organisation could be seen as having 5 distinct
components with reference to their structure:
Strategic apex ensures goal achievement and provide
direct management and direction in relating to the
environment;
Middle Line created tactics for achieving strategic
intentions, converting them into work flows for operations;
Operating Core convert inputs to outputs do the work!;
Techno structure professional staff and analytical
support; assist middle line with planning and execution;
Support Staff all other ancillary services required for
functionality;
Basic Concepts of Structuring
Spans of Control
Span of control refers to the number of
subordinates under the control of a manager, and
reporting directly to the specific manager.

These spans of control may be:

Wide: a span of control where a manager has several
subordinates under his control;
Narrow: a span of control where the manager only has a
few subordinates under is control;
Spans of Control contd
The following must be considered in terms of the
desired span of control:

Capability and ability of manager;
Managers workload;
Geographical dispersion;
Level of subordinates work;
Allowance and level of subordinate interaction;
Supervisory support levels;
Tall & Flat Organisations
The scalar chain of an organisation indicates the
length of the command chain from most senior to
most junior position.

The length of the scalar chain will determine if the
organisation is referred to as a:
Tall organisation
Flat organisation
Tall & Flat Organisations contd
Tall organisations: an organisation which in terms
of its size has several levels of management
hierarchy, thereby resulting in narrow spans of
control.

Flat organisations: an organisation which in terms
of size has a small number management levels,
thus creating wide spans of control.

Organisations may engage in delayering in an
effort to reduce the number of management levels
and boost efficiency and effectiveness.
Organisation Structure
Depending on their purpose, objective and other
characteristics will structured in varying ways:

Entrepreneurial
Functional
Geographic
Product / brand
Divisional
Matrix

Several writers have written theories on the
various options for structuring organisations
towards effectiveness and efficiency, in their
areas of operation.

Structuring Organisations
Entrepreneurial
Also referred to as a simple structure possesses the
following characteristics:

Exhibited within small, young organisations;
Senior management retains direct control over the
operations and staff and dominate the organisation;
Staff usually operational, no need based on size for
technical or other support staff;
Coordination by direct supervision;
Prone to succession crises who will carry on business;
Little standardisation or formalisation of behaviour;
Activities and operations centralised around management

Functional
The organisation structured by grouping people
within by the tasks or functions they perform e.g.
sales, marketing, finance, production,
administration or research.
Expertise is pooled;
Duplication is avoided;
Facilitates recruitment and operation throughout
specialisation where required;
Its focus is on inputs and processes, rather than customers
and outputs that generate the revenue;
Poor coordination and communication may result; vertical
barriers arise due to lack of horizontal integration

Geographical area
The organisation is structured according to
separation by the territories or jurisdictions within
which it operates. The structure however, requires
a centralised head office that will at least retain
some authority over operations, though managed
by territory.

Local decision making and management is made more
relevant;
Often cheaper and more effective to have a presence
within each market area;
Some duplication and inconsistency may arise each
location may have functional or product structures
Product / Brand
The organisations departmentation or segmentation
is based on products being produced or services
being offered, with common departments in
existence for the support services or functions such
as admin, HR, finance.

Each product will have its own marketing,
production, sales and distribution areas/functions:
Accountability and performance is based on product
performance;
Greater coordination may be achieved;
Allows for effective brand awareness, recognition,
differentiation and loyalty;
More complex structures result
Divisional
A business is divided into autonomous regions or
product businesses, each with its own source of
revenues, expenses, asset purchases. As a result
they are responsible for a segment of the
businesses profit or loss.

A division may be:
A subsidiary of a group;
Profit or investment centre of a company;
A strategic business unit
MAKING DIVISIONAL STRUCTURES WORK..........

Proper and effectively delegated authority is required;
Each divisional unit must be able to support the
management it requires, without need to rely on head
office;
Each unit is expected to have potential for sales growth
and business expansion;
Related party transactions should be managed effectively
and transparently to ensure success.

Matrix
A matrix is based on the combination of functional
and product based structures.

Allow for greater flexibility, coordination, interaction,
cooperation and communication;
Staff motivation and development is achieved;
Dual authority and reporting lines create conflict;
Complex structure, dual reporting, authority and
objective lead to slow decision making.
Centralisation vs. Decentralisation
Centralisation refers to concentration of major
aspects of control, management and authority in
one location over the resources of an organisation,
with a view to enhancing effectiveness and
coordination.

Centralisation is usually achieved on geographic
basis or on the basis of authority. (see pg 89-90)

Decentralisation provides more flexibility,
through a spreading of responsibilities for control,
management and coordination throughout the
organisation.
Departmental Roles & Functions

Each department within an organisation will be
charged with the performance or responsibility for
specific task, functions and roles towards
achievement of the overall goals and objective.

These many roles and functions may be separated
within an organisation as follows, and provide the
following support or activities:
Research and development: this function will
engage in pure and applied research and
development.
Pure research: original research to obtain new scientific and
technical knowledge, with no clear commercial or practical
applications;
Applied research: original research similar to pure research, but
with a practical application or use already known or being used;
Development: using the scientific and technical knowledge
gained through research to produce new and improved
products or systems with a view to commercial application or
use.

R & D activities will focus on:
Product research: activity to create new products and
improvement of existing products;
Process research: activity to improve and revise the way our
current and future products are made and services delivered.
Purchasing: the process of procurement and
acquisition of materials resources, services and
inputs for the facilitation of the organisations
activities. The function is key to the production
process.

The best purchasing mix must be achieved by the
function in terms of:
Quantity
Quality
Price
Delivery / lead time
Production: this function oversees and manages
the creation and output of the organisations goods
and services. It plans, directs and controls the
associated activities.

All other organisational functions must support,
integrate and filter their outputs into this function
in terms of:
Finance
Human resource
Research
Sales
Service operations: any activity or benefit that one
area can provide to another, that is of an intangible
nature, not resulting in ownership of anything.

Services tend to be:
Intangible
Inseparable
Variable

Services must be managed in terms of:
Complexity
Price
Quality
Administration: responsible for daily operational
and support issues in the provision of the
organisations products and services.

These activities carry varying importance and
work levels depending in the existence of a
centralised or decentralised structure.
Finance: responsible for finance and treasury
management, and accounting functions within
the organisation with specific responsibilities for:
Raising money
Recording and controlling
Information provision
Stakeholder reporting

The function must has several roles in planning
and control:
Ensuring financial resources are available;
Integration of strategy into budget preparation;
Establishment of performance measures based on
budgets;
Management of the financial resource;
Creating financial controls

Financial management: responsible for:
Investment decisions
Financing decisions
Dividend policy

Treasury management: plans and control the
source and use of funds for the organisation
through several techniques:
Cash budgeting
Banking facilities
Foreign currency management
Cash flow management and control

Financial accounting: recording and reporting
the financial effect of transactions financial
position, performance and cash flows.


Management accounting: provision of useful
information for the planning, control and decision
making functions.

Human resource management: concerned with the
effective use of the human resource of an
organisation. It deals with:

Recruitment and selection
Staffing levels
Motivation
Employee relations
Employee services

HRM evaluates and organisations human resource
needs, finding the right mix of people and
achieving the best outputs from this resource.
The function has the following objectives:
Development of effective human component, that can
respond effectively to change;
Recruitment, selection, development and motivation of a
suitable human resource;
Creation and maintenance of a cooperative environment
for human relationships;
Meeting the social and legal responsibilties relating to
human resource

The function is important to:
Increase in productivity;
Enhancement of group learning;
Reduction and control of staff turnover;
Encourage initiative;
Marketing: the process that identifies, anticipates
and satisfies customer needs in the most
profitable manner.

Marketing activities will include:
Sales support tele-marketing and sales, customer
management;
Marketing communications brochures, catalogues, ad
promos and campaigns;
Operational marketing market research, brand mgt,
product development, marketing programmes;
Strategic marketing creation of new competitive
strategy

Organisations will spend time creating marketing
strategies through:
Marketing audits
Marketing plans
Marketing control
The marketing strategy will create a marketing
orientation for the organisation:

Production orientation: assumes that customers will buy
whatever we produce- therefore produce as many as
possible demand will exceed supply;

Sales orientation: assumes resistant customers, so active
and aggressive promotion is required to persuade customer
sales;

Product orientation: assumes that by adding features to
existing products, that demand will increase.

Marketing orientation: unlike the other orientations,
assumes that the needs and wants of customers must be
ascertained in order to deliver more suitable products and
therefore eliminate the effects of competition.
Marketing mix: a set of controllable variables and
their levels that an organisation uses to influence
the target.

The variables in the mix are:
Product: addresses product characteristics
Price: considers pricing objectives
Place: addresses how the product will be conveyed to the
customer
Promotion: development of marketing communication and
promotion

Product variable: considers product or service
characteristics like design, features, quality, safety,
image etc.

Products will possess core benefits or uses along
with augmented or additional features and uses.

The following distinctions are also possible:
Class
Form:
Brand or make
Price variable: must determine most suitable and
appropriate pricing for the product based on its
use and expected profitability.

Demand will tend to influence pricing. Several
pricing strategies exist:
Penetration pricing
Market skimming

Pricing also assists in creating an image for the
product in the market.

Pricing is also the key tool in competitive wars
between organisations and their products.

Place variable: addresses two aspects in terms of
distribution of the organisations products and
services.

Outlets: branches, locations and points from where
the products may be sold;

Logistics: use of intermediaries, creation and
management of a distribution network,
warehousing, storage and transportation

Management Functions: Planning, Control
& Decision Making
Planning: essentially involves the determination of a
direction for an organisation over a defined period of
time, and is achieved through the following steps:
Setting Objectives: this answers the question - where do we
want to be - and tells the organisation clearly what
management seeks to achieve and in what timeframe.

Choice of Strategy: answers the question - how will we get
there and seeks to determine what methods or options are
available for management to choose in order to achieve the
stated objectives.

& Decision Making
Objectives: articulate what a business seeks to achieve
over a specified period of time.

Strategy: involves the formulation of objectives and
goals for the organisation and the articulation of a
direction for the organisation. It clearly indicates at a
high level, where the organisation currently is and
how will get to where it wishes to be, through the
efficient use of the available resources.

Planning is therefore is the overall process of
developing strategy, tactics and implementing
operations to achieve them
& Decision Making contd
Control: this phase begins following
successful determination and
implementation of an organisational plan at
all levels. The control phase involves two
main aspects:
Comparison the actual results and performance of the
organisation need to be compared to the original plan
(budget/standard), in order to determine if any variances
have occurred;

Corrective Action where variances have occurred and
are significant, some actions must be taken in order to
bring performance back in line with the expected or
planned performance.
& Decision Making contd
Decision making: will be the frequent function
performed by management, and though listed as a
separate function, plays a role in each area of
responsibility for all management personnel.
Decision making simply refers to management
making choice between several available
alternatives.

Decisions are made at the planning, control and all
other phases or areas of organisational
management.
Organisational Planning & Control
Organisations are usually split into several levels,
that correspond to various levels of seniority,
management, roles and tasks.
These levels are:
Strategic Level board of directors, senior mgt, CEO etc.
Tactical Level middle mgt, operational and divisional
mgrs
Operational Level line supervisors, operatives etc.

Each level will be involved in their specific aspects of the
overall corporate planning activity.
Strategic, Tactical & Operational Planning
Strategic planning has been identified as the
process of deciding objectives for the organisation,
changes to these objectives, the resources required
to attain these objectives and the associated policies
that should govern acquisition and utilisation of
these resources.

This aspect of planning takes a global view of the
entire organisation and where it needs to be within
a set timeframe, and is carried out by strategic level
management.
Tactical planning is dealt with by a range of
middle management staff including divisional
heads and technical staff. It addresses primarily the
resource acquisition and allocation of the
organisation, as it relates directly to achieving the
stated goals and objectives.

Tactical planning or management control, is
therefore concerned with effectiveness, efficiency
and economy of the organisations operations.
Additionally, comparative and corrective actions
are vital.
Operational planning involves outlining the steps
and tasks to be performed daily to ensure that with
each action or transaction the organisation is
moving closer to its target objective.

Tactical level staff will interact with operational
supervisors to ensure the tactical programmes
developed can be implemented.

Effectiveness and efficiency are key to the daily
operational performance.
Planning Information & Tools
All levels of management will require useful and
meaningful information that allows them to
adequately carry out the specific planning
functions outlined above.

Management and cost accountants will be charged
with providing this management information on a
timely basis and in a manner suitable to its
intended uses.
Planning Information & Tools - contd

Strategic information:

Originates from internal and external sources
High level summaries
Provides a long term view
Provides a holistic, global organisation outlook
Qualitative and quantitative elements
Will include several forecasts and assumptions


Tactical information:

Internally generated information
Lower level summaries
Provides a short to medium term view
Provides a detailed analysis by activity, function, product
etc.
Available frequently and follows routine preparation
Largely quantitative in nature


Operational information:

Fully derives from internal sources
Highly detailed, as it usually includes raw data and
limited processed information
Provides a daily view and is very immediate in its outlook
Very task specific
Ongoing preparation each day
Provide a very initial and basic trends of activity to be
further analysed.

Each level of management will employ various
methodologies, tools and resources in an effort to
execute their planning functions:

Strategic executive decision systems; forecasting and
planning models; project management software;
Tactical budgets, cash forecasts, action plans and
programmes;
Operational performance reports, customer service
measures, resource usage and requirements;
Planning Timeframes
The planning phases of an entity cover
three distinct timeframes:

Long term planning: also referred to as corporate
planning, it addresses a strategic plan covering a five to
fifteen year time period. Will involve assessment, objective
and evaluation stages;

Short & Medium term planning: the overall long
term strategic or corporate plan can only be achieved
through the implementation of smaller scale plans and
programmes, outlining direcction for the immediate
operational future (12 months).
Session #7
Organisational Culture
The Concept of Culture

Culture refers to the behaviours and understanding
among a group of people as to how things are done
within the group or organisation.

This group could be a nation, gender, population,
profession or organisation.

Our focus is on the culture of organisations and how
it or influences structure of the organisation.
A collection of traditions, values, policies, beliefs
and attitudes that provide the context and
parameters within which things will be done and
advise thought processes.

The culture shapes norms, that determine
behaviours of individuals with reference to their
interactions with the organisation.

It is the organisations way of doing things.
The culture of an organisation may be
demonstrated through:

Organisational structure
Communication styles
Office layout
Symbols, legends and myths
Management style
Attitudes to quality, risk, customers and technology

Shaping a Culture
The culture of an organisation is typically shaped
by the following factors:

The founder of the organisation: founders of
organisations will set a foundation for cultural values and
behaviours that will be typically hard to change, even
when the founder no longer exists;

The history of the organisation: the period of time in
which the organisation was formed, giving consideration
to what was readily accepted in terms of norms during the
period will influence the culture that exists and remains;
Shaping a Culture
The culture of an organisation is typically shaped
by the following factors:

Leadership & management style: managers and leaders
are chosen that will promote and perpetuate the existing
norms and behaviours and ways of doing business;

The environment: behaviours and norms of the
environment will influence internal organisational culture.
The environment will include: countries, regions,
professions etc.
Theories on Culture
Several writers have proposed theories and
concepts of culture and how it influences structure
and operations.

Three key theories were articulated by:

Shein determinants of culture
Handy cultural stereotypes
Hofstede international perspectives
Sheins Theory
Shein defined culture as a set of shared and
implicit assumptions that are held by a group,
determining how it perceives, thinks and reacts.

He suggested that the effect of the founders
impression on culture was significant and became
embedded in the organisation for life.

He saw culture as hardest attribute of an
organisation to change and listed three
determinants of culture:
Sheins Theory
Observable behaviour: the evident behaviours,
norms, artefacts and attitudes within the
organisation;

Underlying values and beliefs: these give the
special meaning to the behaviours and tend to be
communicated through mission statements, brands
and slogans;

Hidden assumptions: unspoken rules and
principles that influence the beliefs and behaviours
Handys Theory
Handy gave greek names and his own
interpretation to the 4 types of cultural stereotypes
developed by Harrison:

Power (Zeus) culture
Role (Apollo) culture
Task (Athena) culture
Person (Dionysus) culture
Handys Theory
Power/Zeus: power and influence come from a
central source, usually in the form of a central
figure. There are few rules and procedures and the
organisation can react to change quickly.

Since power and influence decrease as an
organisation grows, this culture is prevalent within
smaller organisations, but require people having
good relationships.
Handys Theory
Role/Apollo: signifies a more bureaucratic
approach to culture and assumes logic and rational
behaviours exist.

Organisations with such a culture will have a
formal structure, adhering to formal rules and
procedures.

Individuals are expected to fulfil their roles
without overstepping their authority.

The culture works well in a stable environment of a
large entity
Handys Theory
Task/Athena: management in this culture is seen
as ensuring the completion of projects, tasks or
activities.

Performance will therefore be assessed on results,
and their will be a greater demand for experts and
specialists to achieve the desired results.

The principal objective is getting the job done.
Handys Theory
Person/Dionysus: these cultures serve the interest
of those making up the organisation.

Management within these cultures is lower in
status and less important than the persons
ensuring organisational success - the professionals.

Organisational success depends on the talent of
individuals, with management based on agreement
with individuals.
Hofstedes Theory
His theory suggests 4 dimensions which impact
culture:
Power distance the extent of unequal distribution of power
being accepted;

Uncertainty avoidance extent to which security, control,
risk taking and change are viewed and embraced;

Individualism do people prefer to work together or
separately;

Masculinity how does gender influence roles and culture
In each of these cultures there could be a high or low
degree of each dimension, which determines
organisational culture.
Session #8
Corporate Governance and Social Responsibility
Defining Corporate Governance
The system of ethics, accountability, transparency,
control and rules by which a corporate entity is
directed and controlled by its management and
senior officers.

Corporate governance has a number of elements:
The reduction of corporate risks to all stakeholders;
A set of best practices enhance overall performance through
good supervision and management;
An ethical framework exists for the pursuit of corporate
goals and objectives;
The spirit and the letter of the law should be applied;
Accountability

Principles of Governance
Good governance systems will give consideration to:
Minimisation of risk;
Ensuring adherence to and satisfaction of strategic
objectives;
Fulfilling responsibilities to stakeholders, while minimising
potential conflicts of interest;
Establishment of clear accountability guidelines for
management;
Maintenance of independence for those who have the duty
to review, monitor and scrutinise;
Provision of accurate and timely reporting of financial and
operating data that meet all relevant criteria;
Encouragement of more proactive involvement of owners
and members in the management process;
Promotion of integrity in business dealings

Perspectives on Governance
The concept of governance is founded on three main
views of the relationship between the ownership and
management of the organisation:

Stewardship theory: management are essentially stewards of
the organisations assets, charged with their effective and
efficient deployment; other stakeholders usually take no
interest;

Agency theory: management acts in an agency capacity,
attempting to service their own interests, and encouraging
performance only where it meets these self interests;

Stakeholder theory: management has a duty of care,
responsibility and accountability not only to owners, but also
to all of its other stakeholder and interest groups.
Forces on Governance Development

Increasing globalisation;

Differential treatment of domestic and foreign
investors;

Financial reporting requirements and issues;

Influences of jurisdictions and countries;

The effect of corporate scandals and failures.

Corporate Governance in the UK
Corporate governance frameworks and best practices
have been developed through several reports and
development of accepted codes by various writers
and contributors.

Cadbury Report:
Issued in 1992, was a report on accepted best practices for the
governance of corporate entities;

Greenbury Committee Report:
Issued in 1995, this report focused on governance issues in
terms of the levels of directors remuneration
Hampel Report:
Issued in 1996, was yet another report on accepted best
practices for the governance of corporate entities;

The Combined Code:
Issued in 1998, this report essentially combined the
provisions of the Cadbury, Greenbury and Hampel reports
into a single enforceable code, articulating the principles of
good governance and a prescribed code of best practice.

Turnbull Committee Report:
Issued in 1999, this report assessed governance in light of
managements responsibilities for the internal controls and
risk management of any corporate entity
Higgs Report:
Issued in 2003, this report assessed governance
responsibilities with respect to the remuneration and
responsibilities of the non-executive directors of the corporate
entity;

Smith Report:
Also issued in 2003, the report focused on the role and
responsibilities of an audit committee in contributing to good
corporate governance.

Combined Code on Corporate Governance:
Another combined code issued on 2003, including recent
provisions of Turnbull, Higgs and Smith
Identifying Poor Governance
Poor corporate governance practices are often
evident where there is:

Domination of a single individual;
No proper involvement of the board of directors;
No proper internal audit or internal control systems;
Lack of supervision;
Lack of independent review on an objective basis;
Lack of contact, communication and interaction with
shareholders;
Emphasis on quick return and short term profitability;
Misleading accounts and information

Dealing with Poor Governance
Poor corporate governance practices increase the
risks that an organisation, its owners, members and
other stakeholders are exposed to.

High profile corporate scandals have created a new
focus on the governance of corporations worldwide,
resulting in new measures and regulations being
enforced on companies especially with respect to
reporting practices and requirements:
New regulations
New standards
New and stiffer penalties

Dealing with Poor Governance
The concept of governance has to be one clearly
linked to the core values, beliefs and ethical
principles of the senior management and boards of
directors of companies personal and professional
qualities.

The main recommendations on best practice of
organisations and the roles of specific groups in
perpetuating these practices should be noted.

Stakeholders in Governance
The proponents of strong governance have outlined
the various roles and tasks that specific groups in the
organisation should have in terms of responsibility
and accountability.

These groups are:
Boards of directors
Non-executive directors
Remuneration committees
Audit and internal review committees
Public oversight

Boards of Directors: have responsibility to provide
and define purpose for the company and set the
values by which this purpose will be pursued, on
behalf of the stakeholders noted. The board should:

Have a schedule of matters for decision;
Monitor the CEO/MD;
Oversee strategy;
Monitor risks and control;
Monitor human capital issues;
Ensure effective communication;

BODs should comprise a mix of experience, ability and
knowledge and should include a balance of executive and non-
executive directors.

The board has a personal reponsibility to ensure that it is
satisfied that it has been furnished with all relevant information
required for the decision making process saying I didnt
know is not acceptable. There should also be a division of
responsibilities.

The performance of the board, its Chairman and CEO should
be appraised independently and by owners.

Non-executive directors: possess no daily
managerial functions in the organisation, but
provide a useful mechanism for keeping the
governance of the entity in check. One of their key
roles should be in reducing conflicts of interests
between executive directors and other interests.

Their key roles should be:
Contribution to strategy formulation;
Performance review of management;
Ensure risk reduction especially in corporate reporting;
Setting direction and management remuneration

Non-executives should bring their external
experience to bear on the operations of the entity,
providing perspective, comfort and independence to
the role of the board.

There should be an adequate number sitting on each
board to ensure the weight of their views can be of
significant influence.

Non executive directors should have no financial or
business connection with the entity, no share
ownership, be appointed for specific terms.

Remuneration committees: these committees will
consist of independent non executive directors. They
play a key role in the establishment of policies on
remuneration packages for directors and senior
management.

Criteria in developing this policy may be:
Setting of the policy by independent personnel;
Linking the policy and remuneration to measurable
performance or growth in shareholder value;
Full transparency in directors remunerations and the
disclosure of it.

Internal Control & Audit committees: these
committees will again consist of independent non
executive directors. They role is the independent
review and liaising with external auditors on issues
of internal audit and review, supervision and
financial accounting function, management and
advise on internal controls and supervision of the
external audit process.

The Cadbury report addresses benefits of audit
committees see pg 16.

The main duties of the committee will be:

Review of financial statements and systems:

Liaison with external auditors:
Appointment and removal of auditors;
Consider threats to independence;
Determining the audit scope;
Ensuring provision and access to information;
Being available for meetings and consultation;
Addressing any reservations of the external audit team;

Review of internal audit:
Setting of standards
Detailing scope
Allocating resources
Reporting methods and arrangements
Audit work plan
Link to external audit work
results

Review of risk management:
The potential risks faced by the entity based on its adopted
strategies and policies must be analysed appropriately

Review of internal control:
Monitor adequacy of controls
Set codes of conduct and ethics for compliance
Address risk of fraud
Review and test the controls, analyse reports
Recommend to auditors suggested risk areas
Review high risk and other transaction samples

Investigations:
The committee should request and implement investigations
and detailed reviews of accounting practice and internal
control compliance as deemed necessary to ensure proper
adherence and transparency in reporting.

Corporate Social Responsibility
The concept requires businesses to ensure that
their business practice provide benefits t the
society at large and do not only serve their internal
interests or those of a minority of the stakeholders.

It is an assumed responsibility to take actions, that
are not required but are undertaken in the best
interest of all stakeholder groups, showing the
entity to be a morally and socially aware citizen.
Corporate Social Responsibility
Strategies or approaches to corporate governance
include:

Proactive strategy
Reactive strategy
Defence strategy
Accommodation strategy
Reporting Governance and Social
Responsibility
Companies are required to disclose their in their
annual reports and financial statements the
principles adopted and applied to ensure good
corporate governance in accordance with the
combined code and any other rules or regulations
setting standards on governance.

Any relevant costs and information has issued or
prepared by the stakeholders of governance should
also be adequately disclosed.

Ethics, Governance & Responsibility

Their must be clear interaction between the rules
and principles of ethics, governance and corporate
responsibility as they relate to the safeguarding of
stakeholder interests.

The effects of all sources should be clearly evident
in the behaviours and operations of any corporate
entity, at all levels of staff and management

FIA Paper FAB - Sessions6-8

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