Question 1

Disney Holdings Ltd is a publicly listed company with its board composition as follows:

The board of directors consist of 7 members.

The board chair holds 30% shareholding in the company who is also one of the nonexecutive

directors.

There are 4 members as executive directors; 2 of which are the company's CEO and CFO

itself.

It also has one sub-committee, known as "audit committee". This committee has 3

members, which includes: the chair, an independent director and the CFO. They are

competent enough to provide specific information about the company.

Required:

Review the structure of the board above and discuss potential areas that can lead to Disney's

governance failure.

Question 2

The following is an extract from the Annual Report 2020 of Fijian Holdings Limited:

Required:

Discuss whether the approaches of FHL Group are more consistent with Enlightened Self-Interest

Theory or Stakeholder Theory. Justify your choice.

The FHL Group is committed to the achievements of its mission statement as set out below:

We will create sustainable and consistent value for our shareholders & stakeholders.

We will strive to lead in all our chosen areas of business through creativity, innovation,

passion and by putting our customers first at all times.

We will maintain the highest standards of professional integrity, diligence,

responsibility and care in carrying out all aspects of our business.

We will actively promote the growth & development of our people to excel in business

and fulfil their purpose in life.

Question 3

Kemix Ltd manufactures a chemical compound which is widely used in industrial cleaning. The compound is made from a small number of chemical products. One of these raw materials, Chemical X, is bought from a supplier in a developing country. Chemical X is scarce and is available from only a few global suppliers. In its untreated form, Chemical X is also toxic and can cause serious damage to the health of individuals who are exposed to it. It is also known that the local environment around factories that produce Chemical X are subject to extensive contamination.

A few months ago Kemix Ltd renewed a long-term agreement with the supplier for the purchase of Chemical X. Senior management are aware of the health and environmental risks associated with Chemical X, but did not see that these had any relevance to its own business. The toxic effects of the chemical are eliminated by its treatment in the production process that Kemix uses to make its own chemical compound. Following a major industrial accident one week ago at the main manufacturing site of the supplier of Chemical X, there has been a widespread and intensive reporting campaign in the press and television.

The dangers of Chemical X have become a matter of widespread public debate, and a television program has identified Kemix as a major user of the product. An action group has been formed that seeks to ban the import of Chemical X into the country and for the closure of Kemix manufacturing sites. The board of directors of Kemix Ltd believe that the public concern is excessive and unjustified, but the directors now recognize that they should have done much more to report on the risks from Chemical X, and the measures taken to deal with them, in their social and environmental report.

Required:

Read the above case scenario and answer the questions that follow:

a) Kemix Ltd does not seem to include externalities in their corporate profits. Determine 2 examples of externalities created by the supplier of Chemical X.

b) In light of legitimacy theory, examine 4 alternative courses of action that Kemix Ltd can take to tackle the damaging media reports and save its reputation in the market.

c) Discuss three reasons in favor of reporting social and environmental risks in a company's sustainability report.