Digger Ltd is a supplier of mining equipment to large mining companies. Recently the Company has experienced a decline in sales. The Board of directors is concerned about the future financial health of the Company. Harry Despot, the CEO, has dismissed the concerns and has submitted a strategic plan for the Company to expand its sales over the next five years.

The plan involves substantial debt financing and several of the directors have doubts about the suitability of the strategy. The Board of directors consists of the following members:

1. Sally Sly Chair of the Board, not otherwise employed by the company but owns 10% of the shares in Digger Ltd. Also, Sally is the CEO of Big Mining Ltd, a major client of Digger Ltd.
2. John Brown CPA commenced on the Board on 1 January 1980. No other connection with the company
3. Harry Despot CEO
4. Reginald Long owns 10% of the shares of Digger Ltd and has been a member of the board since 2019. No other connection with the company.
5. Lillian Lilac owns 2% of the shares of Digger Ltd and has been a member of the board for 3 years. No other connection with the company.

Required:

1. What should the board do about the proposed strategy put forward by Harry (CEO)?

(6 marks)

2. Assess the board structure of Digger Ltd? Specifically identify and discuss two distinct shortfalls in terms of good corporate governance. 12 marks)