THE LAW AND CORPORATE GOVERNANCE $-$ CASE STUDY $2024$

'NOT EKSDOM LTD$\text{'}$

Not Eksdom Ltd $($NE Ltd$)$ is a long$-$established maker of solar panels and other related power provision products. The Board of NE Ltd consists of the following members:

Peter Smith $-$ chairman $[2021-]($was CEO from $2013$ to $2019)$

John Jones $-$ non$-$executive director $[2012-]$

Imraan Ebrahim $-$ non$-$executive director $[2017-]($Peter Smith's golf partner$)$

Ms Sue Singer $-$ non$-$executive director $[2022-]$

Ken Franks $-$ CEO $[2019-]$

Ms Thoko Dlamini CA$($SA$)-$ finance director $[2017-]$

Xolani Mazibuko $-$ marketing director $[2020-]$

The Company's next Board meeting is due to be held next month. Top of the agenda for the meeting is the coming up with a strategy to source material for the manufacturing of their top$-$of$-$the$-$range lithium batteries, which work best with their solar panels and inverters. All of the directors have been tasked with identifying possible solutions.

At the Board meeting, Sue Singer, fairly new to the Board, recommends that the Board considers entering into a co$-$operation agreement with Musk Batteries, a low volume supplier from America. It would however require a substantial capital outlay to assist Musk Batteries to increase their manufacturing output and cover the transport costs from America which NE Ltd would struggle with in the short term but there would be longer term benefits, including not having to retrench staff due to their current financial situation. The marketing director, Xolani Mazibuko, thinks that this will be a waste of money and suggests instead that the company rather sources the lithium from regional producers. He offers to negotiate with a Zimbabwean supplier, Ndabaningi Mines $($Pvt$)$ Ltd $($a company in which he has a $30\%$ stake$),$ to ensure a smooth supply from this new source.

Imraan Ebrahim and Ken Franks, having taken independent advice, support Sue's proposal, as their research has shown that Ndabaningi Mines purchases their lithium from illegal miners in the rural areas of Zimbabwe, where the mining is not done in a sustainable and environmentally friendly manner. The price paid for the lithium is also far below a living wage for the miners.

When the proposals are put to the vote, the majority of the Board decides to support Xolani and go with Ndabaningi Mines. Concerned by the possible negative reaction to being seen as environmentally unfriendly, Imraan, Ken and Sue vote against the decision. When the decision is made public, the top five clients of NE Ltd cancel their contracts, the share price drops $40\%$ and a group of shareholders is threatening a class action against the company and its directors.

Upset by the lack of support for her proposal, Sue resigns and after she has left the meeting, Thoko proposes that the managing director of Ndabaningi Mines be appointed to the board with immediate effect, to cement the new relationship.

Discuss and apply the general principles of company law and corporate governance applicable to Not Eksdom $($NE$)$ Ltd in this scenario.