Exercise 1

GoodHealth Limited ('GoodHealth') is a successful family-run business. The board of directors is led by the founder of the company, John Hink ('John'), who is both chairman and chief executive officer (CEO). The other board members, a finance director and two non-executive directors, are also John's brother and daughter. The members of the Hink family own all the share capital of the company. The company does not have a company secretary, and its auditors are a local firm of accountants in the town where Hink has its head office. John is proud of his entrepreneurial success. He has been prepared to take big risks with the company's strategy in order to grow the business and, when necessary, he has been willing to cancel the annual dividend to shareholders to spend money on investment or to accept temporary decline in profits for the sake of longer-term success. He is aware that the company does not have a good reputation as an employer, but he believes that the company exists for the benefit of the Hink family and employees should be grateful to have their jobs. John wants to retire in a few years' time. He would like his daughter to take over the running of the company, but he would also like to take the company public and get it accepted on to AIM, the junior stock market in the UK. He is aware that the governance of the company will have to undergo substantial change for this to happen, but he does not want to retire until all the changes have been made and the company's shares are being traded on AIM. He also knows that AIM companies are not required to comply with the UK Corporate Governance Code but are, nevertheless, expected to have high standards of governance.

Required

(a) Explain how the board's attitude to its shareholders and other stakeholders will need to change if GoodHealth goes public.

(b) Giving your reasons, identify the main aspects of governance that the board of GoodHealth will have to consider before the company goes public, and suggest changes that will have to be made.

Exercise 2

(a)Alfred is a first year university student. His mother says 'If you get high distinctions in all your subjects this year I will buy you a new Honda Accord'. Alfred works hard and obtains high distinctions in all subjects. However his mother refuses to buy the car, saying that she thinks it is better if she invests the money on the stock market. Is Alfred's mother legally obliged to fulfil her promise? Would it be different if the promise was in writing? Explain.

(b)David is negotiating with Elisabeth for a Holden she has advertised for sale. Elisabeth advertised the car for $30,000. David inspected the car and offered by telephone to buy it for $28,000. Elisabeth replied that $28,000 was too low but she was prepared to agree to $29,000. David said that this price was too high. Thirty minutes later he phoned Elisabeth saying that he had changed his mind and agreed to pay $29,000. However Elisabeth replied that the price was back to $30,000. Discuss.

(c)Foo offers to sell Georgina her Volvo for $30,000. Georgina accepts by letter, posting it on 19 March. Foo does not reply. On 28 March Georgina telephones Foo who says that she has not received the letter so she is free to sell the car to someone else. Discuss.

(d)Hera offers to sell Imelda her BMW for $30,000. Hera says that Imelda has until 30 March to accept. Imelda decides to buy the car. However before she writes to Hera, Hera telephones Imelda on 25 March saying the deal is off because she is selling the car to George. Discuss.