question archive Introduction Corporate governance can be defined as mechanisms by which an organisation is administered and supervised (ACCA, 2012a, p

Introduction Corporate governance can be defined as mechanisms by which an organisation is administered and supervised (ACCA, 2012a, p

Subject:Operations ManagementPrice: Bought3

Introduction

Corporate governance can be defined as mechanisms by which an organisation is administered and supervised (ACCA, 2012a, p.5). Where the owners of the company (the shareholders) do not participate in the day-to-day business of the company, as is the case in incorporated businesses like the Kendallville Bank (KB), these mechanisms deserve special consideration.

At KB, the assessment of one of the key financial reporting figures, the Allowance for Loan and Lease Losses (ALLL), has been changed. The change results in increased net income, but only due to modification in calculation and not due to improved operations. This change occurs in a deteriorating economic climate which makes the increased net income appear misleading. The change was favoured by Dan Davis, Chief Lending Officer (CLO) and member of the executive team. Executive remuneration at KB partly depends on meeting financial and business targets. With Davis being responsible for loans and leases the arithmetical change of ALLL raises questions of his integrity, with integrity defined as honesty and transparency (Stanwick and Stanwick 2014, p.216).

Thus, the first purpose of this report is to review the corporate governance structures and board of directors in place at KB and to make recommendations against international best practice. The second issue is to evaluate how the management control systems and the culture of KB may need to be changed. With KB currently pursuing acquisition of another bank, the issues raised in this report are crucial for the bank to remain a credible organisation for its own shareholders and that of a prospective acquiree.

Methods

KB is a public company based in USA and thus is subject to the corporate governance provisions of the Sarbanes-Oxley Act (SOX) 2002 and the listing rules of the New York Stock Exchange (NYSE). Besides this legislation and regulations, various corporate governance codes with relevance to the USA were used. These provisions are contrasted against the UK Combined Code and its preceding documents. The audit function is assessed using professional American and European codes of conduct for audit professionals. Academic literature was used to provide the theoretical context and to evaluate the practices at use. The list of references collects all the sources.

 

Findings

Review of the Executive Team

The executive team at KB is led by Sandra Renwood who is president, CEO and chairman of the board of directors. This personal union is not precluded by the SOX regulations. But it is also not encouraged by American and international corporate governance principles. Even more, ICGN (2014, p.9) discourages that a former CEO becomes chairman after his executive term, let alone during the term. The UN (2006, p.12) claims that separation is considered desirable to prevent one person from incorporating too much power at the top of the organisation. CII (2015, p.6) asks to combine the roles in "very limited circumstances" only. Separation of duties is considered best practice acc. to the Combine Code (FRC 2014, p.7-8).

One of the problems under the current system at KB is that no board meetings without the CEO can be conducted in order to evaluate her performance, as asked for by ICGN (2014, p.10). If that were the case the board probably could be more challenging in assessing the executives and their business conduct.

 

QUESTION:

List the questionable practices with respect to the EXECUTIVE TEAM. Use complete sentences. Number your statements. Ensure that statements of similar subject shall only be presented as one item.

 

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE