未知题型 Lum Co is a family business that has been wholly-owned and controlled by the Lum family since 1920. The current chief executive, Mr Gustav Lum, is the great grandson of the company’s founder and has himself been in post as CEO since 1998. Because the Lum family wanted to maintain a high degree of control, they operated a two-tier board structure: four members of the Lum family comprised the supervisory board and the other eight non-family directors comprised the operating board.Despite being quite a large company with 5,000 employees, Lum Co never had any non-executive directors because they were not required in privately-owned companies in the country in which Lum Co was situated.The four members of the Lum family valued the control of the supervisory board to ensure that the full Lum family’s wishes (being the only shareholders) were carried out. This also enabled decisions to be made quickly, without the need to take everything before a meeting of the full board.Starting in 2008, the two tiers of the board met in joint sessions to discuss a flotation (issuing public shares on the stock market) of 80% of the company. The issue of the family losing control was raised by the CEO’s brother, Mr Crispin Lum. He said that if the company became listed, the Lum family would lose the freedom to manage the company as they wished, including supporting their own long-held values and beliefs. These values, he said, were managing for the long term and adopting a paternalistic management style. Other directors said that the new listing rules that would apply to the board, including compliance with the stock market’s corporate governance codes of practice, would be expensive and difficult to introduce.The flotation went ahead in 2011. In order to comply with the new listing rules, Lum Co took on a number of non-executive directors (NEDs) and formed a unitary board. A number of problems arose around this time with NEDs feeling frustrated at the culture and management style. in Lum Co, whilst the Lum family members found it difficult to make the transition to managing a public company with a unitary board. Gustav Lum said that it was very different from managing the company when it was privately owned by the Lum family. The human resources manager said that an effective induction programme for NEDs and some relevant continuing professional development (CPD) for existing executives might help to address the problems.Required:(a) Compare the typical governance arrangements between a family business and a listed company, and assess Crispin’s view that the Lum family will ‘lose the freedom to manage the company as they wish’ after the flotation. (10 marks)(b) Assess the benefits of introducing an induction programme for the new NEDs, and requiring continual professional development (CPD) for the existing executives at Lum Co after its flotation. (8 marks)(c) Distinguish between unitary and two-tier boards, and discuss the difficulties that the Lum family might encounter when introducing a unitary board. (7 marks)

未知题型 Section B – TWO questions ONLY to be attemptedJohn Louse, the recently retired chief executive of Zogs Company, a major listed company, was giving a speech reflecting on his career and some of the aspects of governance he supported and others of which he was critical. In particular, he believed that board committees were mainly ineffective. A lot of the ineffectiveness, he said, was due to the lack of independence of many non-executive directors (NEDs). He believed that it was not enough just to have the required number of non-executive directors; they must also be ‘truly independent’ of the executive board. It was his opinion that it was not enough to have no material financial connection with a company for independence: he believed that in order to be truly independent, NEDs should come from outside the industry and have no previous contact with any of the current executive directors.In relation to risk committees, he said that in his experience, the company’s risk committee had never stopped any risk affecting the company and because of this, he questioned its value. He said that the risk committee was ‘always asking for more information, which was inconvenient’ and had such a ‘gloomy and pessimistic’ approach to its task. He asked, ‘why can’t risk committees just get on with stopping risk, and also stop making inconvenient demands on company management? Do they think middle managers have nothing else to do?’ He viewed all material risks as external risks and so the risk committee should be looking outwards and not inwards.Since retiring from Zogs, Mr Louse had taken up a non-executive directorship of SmallCo, a smaller private company in his town. In a meeting with Alan Ng, the new chief executive of Zogs, Mr Ng said that whilst risk management systems were vital in large companies like Zogs, fewer risk controls were needed in smaller companies like SmallCo.Required:(a) Define ‘independence’ in the context of corporate governance and critically evaluate Mr Louse’s comment that greater independence of non-executive directors is important in increasing the effectiveness of board committees. (8 marks)(b) Describe the roles of a risk committee and criticise Mr Louse’s understanding of the risk committee in Zogs Company. (9 marks)(c) Assess whether risk committees and risk mitigation systems are more important in larger companies, like Zogs, than in smaller companies like SmallCo. (8 marks)

未知题型 Jojo Auditors is an audit practice with five partners. The five partners have worked together for several years and, as well as being work colleagues, are personal friends with each other. At Jojo it is customary for the performance of all student accountants to be appraised after their first year of a training contract using a range of criteria including examination success, technical ability and professionalism. Three levels of outcome are possible:1. ‘Good’, allowing students to continue with no issues;2. ‘Some concerns’, meaning students are counselled and then allowed to continue; and,3. ‘Poor’, where students are dismissed from the audit practice.The appraisal committee is comprised of three people: managing partner Jack Hu, the training manager (both of whom are professional accountants) and the person responsible for human resources. The committee receives confidential reports on each student and makes decisions based on the views of relevant engagement partners and also exam results. It is normally the training manager who makes the recommendation and in most cases his appraisal is agreed and then acted upon accordingly. Because the appraisals are confidential between the student and the firm, the list of students and their appraisal categories are not publicised within the firm.When the 2010 intake was being appraised last year, one student was appraised by the training manager as ‘poor’ but was not dismissed. Polly Shah was unpopular among other students because she was considered lazy and technically weak. She also failed a number of her exams. Other students who were appraised as ‘poor’ were dismissed, but Polly received a brief counselling session from Jack Hu and then returned to her duties. Polly stayed for another year and then, having failed more exams, left Jojo to pursue other career interests outside accounting.Polly’s departure triggered some discussion amongst Jojo’s partners as to why she had been retained when other poor performers had not. It later emerged that Jack Hu was a close friend of Polly’s parents and had enjoyed free holidays in the Shah family’s villa for several years. Because he was the managing partner, Mr Hu was able to insist on retaining Polly, despite the objections of the training manager and the human resources representative, although the training manager was reported to be furious at the decision to retain Polly.Required:(a) Define ‘conflict of interest’ and assess the consequences of Jack Hu’s behaviour after Polly Shah’s appraisal. (10 marks)(b) Describe four ethical safeguards that could be used in Jojo to prevent a recurrence of the events like those described in the case. (8 marks)(c) The case raises issues of the importance of senior management performance measurement. In a public company, this refers to directors, and in a privately-owned partnership like Jojo, it refers to partners. The managing partner (Mr Hu’s position) is equivalent to the role of chief executive.Required:Explain the typical criteria used in the performance measurement of individual directors and discuss the reasons why individual performance measurement of partners may be difficult to implement at Jojo. (7 marks)