Freesia Co has been listed on the stock exchange for over eight years. Its board structure and corporate governance practices are being reviewed to ensure compliance with listing rules and principles of best practice. The finance director currently sets executive remuneration and sits on the audit committee, which may present conflicts of interest. Additionally, the chairman alone is responsible for shareholder communication, rather than the full board. To address these weaknesses, Freesia Co should remove the finance director from the audit committee, establish a remuneration committee to set pay, restructure executive bonuses to focus on long-term goals, and ensure all board members participate in shareholder engagement.
Freesia Co has been listed on the stock exchange for over eight years. Its board structure and corporate governance practices are being reviewed to ensure compliance with listing rules and principles of best practice. The finance director currently sets executive remuneration and sits on the audit committee, which may present conflicts of interest. Additionally, the chairman alone is responsible for shareholder communication, rather than the full board. To address these weaknesses, Freesia Co should remove the finance director from the audit committee, establish a remuneration committee to set pay, restructure executive bonuses to focus on long-term goals, and ensure all board members participate in shareholder engagement.
Freesia Co has been listed on the stock exchange for over eight years. Its board structure and corporate governance practices are being reviewed to ensure compliance with listing rules and principles of best practice. The finance director currently sets executive remuneration and sits on the audit committee, which may present conflicts of interest. Additionally, the chairman alone is responsible for shareholder communication, rather than the full board. To address these weaknesses, Freesia Co should remove the finance director from the audit committee, establish a remuneration committee to set pay, restructure executive bonuses to focus on long-term goals, and ensure all board members participate in shareholder engagement.
Freesia Co has been listed on the stock exchange for over eight years. Its board structure and corporate governance practices are being reviewed to ensure compliance with listing rules and principles of best practice. The finance director currently sets executive remuneration and sits on the audit committee, which may present conflicts of interest. Additionally, the chairman alone is responsible for shareholder communication, rather than the full board. To address these weaknesses, Freesia Co should remove the finance director from the audit committee, establish a remuneration committee to set pay, restructure executive bonuses to focus on long-term goals, and ensure all board members participate in shareholder engagement.
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The listing rules of the stock exchange require compliance with corporate
governance principles and the directors of Freesia Co are confident that they are following best practice in relation to this. However, the chairman recently received correspondence from a shareholder, who is concerned that the company is not fully compliant. The company’s finance director has therefore requested a review of the company’s compliance with corporate governance principles. Freesia Co has been listed for over eight years and its board comprises four executive and four independent non-executive directors (NEDs), excluding the chairman. An audit committee comprised of the NEDs and the finance director meets each quarter to review the company’s internal controls. The directors’ remuneration is set by the finance director. NEDs are paid a fixed fee for their services and executive directors are paid an annual salary as well as a significant annual bonus based on Freesia Co’s profits. The company’s chairman does not have an executive role and so she has sole responsibility for liaising(communicating) with the shareholders and answering any of their questions. Required: Describe TWO corporate governance weaknesses faced by Freesia Co and provide a recommendation to address each weakness to ensure compliance with corporate governance principles. Weakness Recommendation The finance director is a member of the the finance director should resign from audit committee. the committee. The audit committee should be made up entirely of independent NEDs The remuneration for directors is set by remuneration committee should decide the finance director. However, no on the remuneration of the executives’ director should be involved in setting directors. their own remuneration as this may result in excessive levels of pay being set. Executive remuneration includes a The remuneration of executives should significant annual profit related bonus. be restructured to include a significant Remuneration should motivate the proportion based on long-term directors to focus on the long-term company performance. growth of the business, however, annual targets can encourage short- term strategies rather than maximizing shareholder wealth The chairman has sole responsibility All members of the board should be for liaising with the shareholders and involved in ensuring that satisfactory answering any of their questions. dialogue takes place with shareholders, However, this is a role which the board for example, all should attend meetings as a whole should undertake. with shareholders such as the annual general meeting.
