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GRE811S-CORP GOVERNANCE RISK AND ETHICS-2ND OPP-JULY 2022 |
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r
nAm I BIA UnlVERSITY
OF SCIEnCE Ano TECH n OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ACCOUNTING, ECONOMICS & FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING (HONOURS)
QUALIFICATION CODE: 08BOAH
COURSE CODE: GRE811S
LEVEL: 8
COURSE NAME: CORPORATE GOVERNANCE,
RISK AND ETHICS
SESSION: JUNE 2022
DURATION: 2½ HOURS
PAPER: THEORY
MARKS: 88
EXAMINER:
2ND OPPORTUNITY QUESTION PAPER
Dr Kofi Boamah
MODERATOR: Marko Tondota
INSTRUCTIONS
• This question paper is made up of THREE(3) questions.
• Answer All the questions in blue or black ink.
• You are advised to pay due attention to expression and presentation. Failure to do so will
cost you marks.
• Start each question on a new page in your answer booklet and show all your workings.
• Questions relating to this paper may be raised in the initial 30 minutes after the start of
the paper. Thereafter, candidates must use their initiative to deal with any perceived error
or ambiguities and any assumption made QYthe candidate should be clearly stated.
PERMISSIBLE MATERIALS: NONE
THIS QUESTION PAPER CONSISTS OF 5 PAGES (Including this front page)
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QUESTION ONE
{25 marks)
DON (PTY) Ltd. is a large, listed company. When a non-executive directorship of DON Limited became
available, Peter Shinana was nominated to fill the vacancy. John is the brother-in-law of DON's chief
executive Ken Shilongo. John is also the CEOof Sammy Supplies Ltd, DON's largest single supplier and is,
therefore, very familiar with DON and its industry. He has sold goods to DON for over 20 years and is on
friendly terms with all of the senior officers in the company. In fact, last year, Sammy Supplies appointed
DON's finance director, Susan Emmy, to a non-executive directorship on its board.
The executive directors of DON all know and like John and so plan to ask the nominations committee to
appoint him before the next AGM.
Don (Pty) Ltd. has recently undergone a period of rapid growth and has recently entered several new
overseas markets, some of which, according to the finance director, are riskier than the domestic market.
Ken Shilongo, being the dominant person on the DON board, has increased the risk exposure of the
company according to some investors. They say that because most of the executive directors are less
experienced, they rarely question his overseas expansion strategy. This expansion has also created a
growth in employee numbers and an increase in the number of executive directors, mainly to manage the
increasingly complex operations of the company. It was thought by some that the company lacked
experience and knowledge of international markets as it expanded and that this increased the risk of the
strategy's failure. Some shareholders believed that the aggressive strategy, led by Ken Shilongo, has been
careless as it has exposed DON Limited to some losses on overseas direct investments made before all
necessary information on the investment was obtained.
As a large, listed company, the governance of DON is important to its shareholders. Dan More is one of
DON's largest shareholders and holds a large portfolio of shares including 8% ofthe shares in DON. At the
last AGM he complained to DON's chief executive, Ken Shilongo, that he needed more information on
directors' performance. More said that he didn't know how to vote on board reappointments because he
had no information on how they had performed in their jobs. Mr Shilongo said that the board intended
to include a corporate governance section in future annual reports to address this and to provide other
information that shareholders had asked for. He added, however, that he would not be able to publish
information on the performance of individual executive directors as this was too complicated and not the
concern of shareholders. It was, he said, the performance of the board as a whole that was important,
and he (Mr Shilongo) would manage the performance targets of individual directors.
You are required to:
(a) Explain the term 'conflict of interest' in the context of non-executive directors and discuss the
potential conflicts of interest relating to DON and Sammy Supplies if Peter Shinana were to become
a non-executive director of DON Limited.
(8)
(b) Assessthe advantages of appointing experienced and effective non-executive directors
to the DON board during the period in which the company was growing rapidly.
(7)
(c) Explain the typical contents of a 'best practice' corporate governance report within an
annual report and how its contents could help meet the information needs of Dan More.
(10)
{Total = 25 marks)
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QUESTION TWO
(25 marks)
SwakopLtd, a large manufacturing company, wishes to appoint a number of non-executive
directors to their Board. In doing so they wish to comply with the recommendations of The
King IV Report on Corporate Governance. The existing Board is made up as follows:
Chairman and Chief Executive Officer
financial Director
Production Director
Sales and Marketing Director
Operations Director
Non-executive Director
Paulus Xoagub
Mark Shinana
Samuel Masheko
Claudia Davies
Eirich Trump
Henry Shiimi*
*Henry Shiimi represents his uncle Paul Shiimi who has a 30% shareholding in Swakop Ltd.
Paul Shiimi has the largest single holding in Swakop Ltd. The following individuals are
being considered for appointment:
Adrin Victor
Simon Dongo
P r o m i n e n t local businessman who is active
in community projects
A recently retired engineer who had been consulted by
Swakop Ltd on odd occasion.
Philip Shinana
A chartered accountant and son of Mark Shinana
Silva Kambinda
Elias Peters
Kauta Philips
Jonannes Serafi
Charles Anderson:
Agnes Festus
A partner in Swakop Ltd'saudit firm (not
th e designated partner).
The company's legal adviser since the company's
inception.
A consultant in Swakop Ltd's line of business, who
has no business relationship with Swakop Ltd.
A businessman and chairman of the local Chamber of
Commerce.
T h e owner of a small business which supplies Swakop
Ltd with a number of components used in their
manufacturing process. Charles Anderson's business is
one of ten such small businesses which supply
Swakop Ltd as a part of the company's social and
business development initiatives. Swakop Ltd is his
major customer.
The recently retired senior public relations manager at
Swakop Ltd. This is a senior executive role.
Paulus Xoagub has asked you to advise him on "what should be done to get our Board
right".
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You are required to:
(a) Comment on the composition of the existing Board of Swakop Ltd in terms of the
recommendations of the King IV Code.
(5)
(b) Advise Paulus Xoagub on how the board of directors of Swakop Ltd should be
reconstituted to satisfy the recommendations of the King IV Code. Your answer
should indicate inter alia, which of the individuals being considered, should be appointed.
Justify your choice.
(20)
QUESTION THREE
(38 marks)
Malta Ltd is a company listed on the NSX in the industrial/mining sector. The board
regards sound corporate governance as very important and has ensured that the company has
the necessary structures, policies and procedures in place. In general, the board follows a
policy of delegating duties to board committees which consist of well qualified and experienced
directors.
The board has the following committees inter alia, in place:
1. audit committee.
(5)
2. nominations committee.
(4)
3. remuneration committee.
(4)
4. health, safety and environment committee.
(4)
The board is constituted in the recommended manner with regard to race, gender, skills and
the balance between executive and non-executive directors. In addition, Joe Ndlovu heads up a
strong internal audit function and Karen Smith is the company secretary.
Martin Gibbs is the company's credit controller, and Reg Ngubane is the group purchasing
manager.
One of the cornerstones of the company's corporate governance is the management ofrisk. Much
attention has been directed at implementing a "risk awareness" culture into all aspects of the
business and risk evaluation and response is an ongoing activity.
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You are required to:
a) briefly discuss four key risks facing the modern company.
(I 0)
b) discuss the role, if any, which each of the committees listed above plays in the
management of risk at Malta Ltd (marks in brackets above).
( 18)
c) discuss the role, if any, each of the four individuals mentioned in the question,
should play in the management of risk at Malta Ltd.
(12)
Mark allocation for (c)
Joe Ndlovu
(4)
Karen Smith
(2)
Martin Gibbs
(3)
RegNgubane
(3)
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