QUESTION ONE

1. Explain any four (4) elements of corporate governance. (8 marks)
2. Discuss the fiduciary responsibility that exist between the directors and shareholders. (8 marks)
3. Explain any two (2) advantages of the principles-based approach. (4 marks)
4. Explain the difference between voluntary and involuntary stakeholders. (5 marks)

QUESTION TWO

Malu Chem plc is a well-established listed chemical company involved in research into, and the production of, a range of chemicals used in industries such as agrochemicals, oil and gas, paint, plastics and building materials. A strategic priority recognized by the Malu Chem board some time ago was to increase its international presence as a means of gaining international market share and servicing its increasingly geographically dispersed customer base. The Malu Chem board, which operated as a unitary structure, identified J&P PLC as a possible acquisition target because of its good product fit with Malu Chem PLC and the fact that its geographical coverage would significantly strengthen Malu Chems internationalisation strategy. Based outside Africa in a region of growth in the chemical industry,

J&P PLC was seen by analysts as a good opportunity for Malu Chem PLC, especially as J&Ps recent flotation had provided potential access to a controlling shareholding through the regional stock market where J&P PLC operated. When the board of Malu Chem PLC met to discuss the proposed acquisition of J&P PLC, a number of issues were tabled for discussion. Bill Banda, Malu Chems chief executive, had overseen the research process that had identified J&P PLC as a potential acquisition target. He was driving the process and wanted the Chemco board of directors to approve the next move, which was to begin the valuation process with a view to making an offer to J&Ps shareholders. Bill said that the strategic benefits of this acquisition was in increasing overseas market share and gaining economies of scale. While Malu Chem PLC was a public company, J&P Plc had been family owned and operated for most of its thirty-five year history. Seventy-five percent of the share capital was floated on its own countrys stock exchange two years ago, but Leena Mutale, Chemcos company secretary, suggested that the corporate governance requirements in J&Ps country were not as rigorous as in many parts of the world. She also suggested that the family business culture was still present in J&P Plc and pointed out that it operated a two-tier board with members of the family on the upper tier. At the last annual general meeting, observers noticed that the J&P board, mainly consisting of family members, had dominated discussions and had discouraged the expression of views from the companys external shareholders. J&P Plc had no non-executive directors and none of the board committee structure that many listed companies like Malu Chem Plc had in place. Bill reported that although J&Ps department heads were all directors, they were not invited to attend board meetings when strategy and management monitoring issues were being discussed. They were, he said, treated more like middle management by the upper tier of the J&P Plc board and that important views may not be being heard when devising strategy. Leena suggested that these features made the J&P Plc boards upper tier less externally accountable and less likely to take advice when making decisions. She said that board accountability was fundamental to public trust and that J&Ps board might do well to recognise this, especially if the acquisition were to go ahead. Malu Chems finance director, Susan Mutale, advised caution over the whole acquisition proposal. She saw the proposal as being very risky. In addition to the uncertainties over exposure to foreign markets, she believed that Malu Chem Plc would also have difficulties with integrating J&P Plc into the Malu Chem Plc culture and structure. While Malu Chem was fully compliant with corporate governance best practice, the country in which J&P Plc was based had few corporate governance requirements. Manfield Mulenga, Malu Chems operations director, asked Bill if he knew anything about J&Ps risk exposure. Manfield suggested that the acquisition of J&P Plc might expose Malu Chem Plc to a number of risks that could not only affect the success of the proposed acquisition but also, potentially, Malu Chem Plc itself. Bill replied that he would look at the risks in more detail if the Malu Chem Plc board agreed to take the proposal forward to its next stage. Finance director Susan had obtained the most recent annual report for J&P Plc and highlighted what she considered to be an interesting, but unexplained, comment about negative local environmental impact in its accounts. She asked chief executive Bill if he could find out what the comment meant and whether J&P Plc had any plans to make provision for any environmental impact. Bill was able to report, based on his previous dealings with J&P Plc, that it did not produce any voluntary environmental reporting. The Malu Chem board broadly supported the idea of environmental reporting although company secretary Leena recently told Bill White that she was unaware of the meaning of the terms environmental footprint and environmental reporting and so couldnt say whether she was supportive or not. It was agreed, however, that relevant information on J&Ps environmental performance and risk would be necessary if the acquisition went ahead.

Required:

1. Evaluate J&Ps current corporate governance arrangements and explain why they are likely to be considered inadequate by the Malu Chem board. (10 marks)
2. Manfield suggested that the acquisition of J&P Plc might expose Chemco to a number of risks. Illustrating from the case as required, identify the risks that Malu Chem Plc might incur in acquiring J&P and explain how risk can be assessed. (15 marks)
3. Construct the case for J&P Plc adopting a unitary board structure after the proposed acquisition. Your answer should include an explanation of the advantages of unitary boards and a convincing case FOR the J&P Plc board changing to a unitary structure. (10 marks)
4. Explain FOUR roles of non-executive directors (NEDs) and assess the specific contributions that NEDs could make to improve the governance of the J&P board. (5 marks)
5. Write a memo to Leena defining environmental footprint and briefly explaining the importance of environmental reporting for J&P Plc. (10 marks)

(Total marks 50)

Question Three

Mali Bank Ltd is a registered commercial bank providing banking services to the community of a small town of Nakonde in northern Zambia. The shareholders are holding their first annual general meeting at which they intend to choose the board of directors and other officers of the company. Mr. Ndalama Mankuncha who is a renowned corporate governance practitioner, is the main shareholder in the bank and is thrilled at the roles and duties of the board of directors and wants an effective board. He wrote a circular to the other shareholders pleading with that, our bank needs an effective board, we do not need rubberstamp or talking shop board. Our first board of directors needs to be an effective one to set a benchmark for the future boards of director.

Required:

1. Mr. Ndalama Mankuncha wants an effective board over the other two types mentioned above. State three weaknesses of:
2. 1. The rubberstamp board (3 marks)
   2. The talking shop board (3 marks)

2. Some of the company officers to be appointed at the first annual general meeting of Mali Bank Ltd are the directors and the company secretary.
3. 1. State three (3) roles of a company secretary in a limited liability company. (3 marks)
4. 2. Explain the roles you have stated in (i) above. (3 marks)
   3. State three (3) statute disqualifications for appointment as a director in Zambia. (3 marks)
   4. Explain the disqualifications for appointment as a director in Zambia that you have stated in (iii) above. (3 marks)

3. To expand to the other parts of the country, Mali Bank Ltd is thinking of public issue of shares or issue out debentures.

What is meant by:

1. Public issue of shares (4 marks)
2. Issue out of debentures (3 marks)

[Total: 25 Marks]