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(c) Critically discuss FOUR principal roles of non-executive directors and explain the potential tensions between

these roles that WM’s non-executive directors may experience in advising on the disclosure of the

overestimation of the mallerite reserve. (12 marks)


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更多 “ (c) Critically discuss FOUR principal roles of non-executive directors and explain the potential tensions betweenthese roles that WM’s non-executive directors may experience in advising on the disclosure of theoverestimation of the mallerite reserve. (12 marks) ” 相关考题
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考题 1 The board of Worldwide Minerals (WM) was meeting for the last monthly meeting before the publication of the yearendresults. There were two points of discussion on the agenda. First was the discussion of the year-end results;second was the crucial latest minerals reserves report.WM is a large listed multinational company that deals with natural minerals that are extracted from the ground,processed and sold to a wide range of industrial and construction companies. In order to maintain a consistent supplyof minerals into its principal markets, an essential part of WM’s business strategy is the seeking out of new sourcesand the measurement of known reserves. Investment analysts have often pointed out that WM’s value rests principallyupon the accuracy of its reserve reports as these are the best indicators of future cash flows and earnings. In order tosupport this key part of its strategy, WM has a large and well-funded geological survey department which, accordingto the company website, contains ‘some of the world’s best geologists and minerals scientists’. In its investor relationsliterature, the company claims that:‘our experts search the earth for mineral reserves and once located, they are carefully measured so that the companycan always report on known reserves. This knowledge underpins market confidence and keeps our customerssupplied with the inventory they need. You can trust our reserve reports – our reputation depends on it!’At the board meeting, the head of the geological survey department, Ranjana Tyler, reported that there was a problemwith the latest report because one of the major reserve figures had recently been found to be wrong. The mineral inquestion, mallerite, was WM’s largest mineral in volume terms and Ranjana explained that the mallerite reserves ina deep mine in a certain part of the world had been significantly overestimated. She explained that, based on theinterim minerals report, the stock market analysts were expecting WM to announce known mallerite reserves of4·8 billion tonnes. The actual figure was closer to 2·4 billion tonnes. It was agreed that this difference was sufficientto affect WM’s market value, despite the otherwise good results for the past year. Vanda Monroe, the finance director,said that the share price reflects market confidence in future earnings. She said that an announcement of an incorrectestimation like that for mallerite would cause a reduction in share value. More importantly for WM itself, however, itcould undermine confidence in the geological survey department. All agreed that as this was strategically importantfor the company, it was a top priority to deal with this problem.Ranjana explained how the situation had arisen. The major mallerite mine was in a country new to WM’s operations.The WM engineer at the mine said it was difficult to deal with some local people because, according to the engineer,‘they didn’t like to give us bad news’. The engineer explained that when the mine was found to be smaller thanoriginally thought, he was not told until it was too late to reduce the price paid for the mine. This was embarrassingand it was agreed that it would affect market confidence in WM if it was made public.The board discussed the options open to it. The chairman, who was also a qualified accountant, was Tim Blake. Hebegan by expressing serious concern about the overestimation and then invited the board to express views freely. GaryHowells, the operations director, said that because disclosing the error to the market would be so damaging, it mightbe best to keep it a secret and hope that new reserves can be found in the near future that will make up for theshortfall. He said that it was unlikely that this concealment would be found out as shareholders trusted WM and theyhad many years of good investor relations to draw on. Vanda Monroe, the finance director, reminded the board thatthe company was bound to certain standards of truthfulness and transparency by its stock market listing. She pointedout that they were constrained by codes of governance and ethics by the stock market and that colleagues should beaware that WM would be in technical breach of these if the incorrect estimation was concealed from investors. Finally,Martin Chan, the human resources director, said that the error should be disclosed to the investors because he wouldnot want to be deceived if he were an outside investor in the company. He argued that whatever the governance codessaid and whatever the cost in terms of reputation and market value, WM should admit its error and cope withwhatever consequences arose. The WM board contains three non-executive directors and their views were alsoinvited.At the preliminary results presentation some time later, one analyst, Christina Gonzales, who had become aware ofthe mallerite problem, asked about internal audit and control systems, and whether they were adequate in such areserve-sensitive industry. WM’s chairman, Tim Blake, said that he intended to write a letter to all investors andanalysts in the light of the mallerite problem which he hoped would address some of the issues that Miss Gonzaleshad raised.Required:(a) Define ‘transparency’ and evaluate its importance as an underlying principle in corporate governance and inrelevant and reliable financial reporting. Your answer should refer to the case as appropriate. (10 marks)

考题 (c) Explain the benefits of performance-related pay in rewarding directors and critically evaluate the implicationsof the package offered to Choo Wang. (8 marks)

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考题 2 Chen Products produces four manufactured products: Products 1, 2, 3 and 4. The company’s risk committee recentlymet to discuss how the company might respond to a number of problems that have arisen with Product 2. After anumber of incidents in which Product 2 had failed whilst being used by customers, Chen Products had been presentedwith compensation claims from customers injured and inconvenienced by the product failure. It was decided that therisk committee should meet to discuss the options.When the discussion of Product 2 began, committee chairman Anne Ricardo reminded her colleagues that, apart fromthe compensation claims, Product 2 was a highly profitable product.Chen’s risk management committee comprised four non-executive directors who each had different backgrounds andareas of expertise. None of them had direct experience of Chen’s industry or products. It was noted that it wascommon for them to disagree among themselves as to how risks should be managed and that in some situations,each member proposed a quite different strategy to manage a given risk. This was the case when they discussedwhich risk management strategy to adopt with regard to Product 2.Required:(a) Describe the typical roles of a risk management committee. (6 marks)

考题 (c) Risk committee members can be either executive or non-executive.Required:(i) Distinguish between executive and non-executive directors. (2 marks)

考题 (ii) Explain the ethical tensions between these roles that Anne is now experiencing. (4 marks)

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考题 3 The Chemical Services Group plc (CSG), which operates a divisionalised structure, provides services to industrial anddomestic customers in Swingland, a country whose economic climate is subject to significant variations. There havebeen a number of recent changes at board level within CSG and therefore the managing director called a meeting ofthe board of directors at which each of four recently appointed directors put forward their view as to what their primaryfocus should be. These were as follows:The research and development director stated that ‘my primary focus is upon ensuring that we continue to developthe products and services that satisfy the requirements of our existing and potential customers’.The finance director stated that ‘my primary focus is upon keeping our investors satisfied’.The human resources director stated that ‘my primary focus is upon ensuring that we take all the steps necessary toestablish and maintain our reputation as a responsible employer’.The corporate affairs director stated that ‘my primary focus is upon the need to ensure that we are recognised as asocially responsible organisation’.Required:(a) Discuss the criteria that should be considered in deciding upon suitable performance measures in respect ofthe primary focus of each of the FOUR directors of CSG providing THREE appropriate quantitative measuresfor each primary focus.Note: your answer may include financial or non-financial quantitative measures. (12 marks)

考题 (b) Explain how growth may be assessed, and critically discuss the advantages and issues that might arise as aresult of a decision by the directors of CSG to pursue the objective of growth. (8 marks)

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考题 (b) The Superior Fitness Co (SFC), which is well established in Mayland, operates nine centres. Each of SFC’scentres is similar in size to those of HFG. SFC also provides dietary plans and fitness programmes to its clients.The directors of HFG have decided that they wish to benchmark the performance of HFG with that of SFC.Required:Discuss the problems that the directors of HFG might experience in their wish to benchmark the performanceof HFG with the performance of SFC, and recommend how such problems might be successfully addressed.(7 marks)

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考题 (a) Contrast the role of internal and external auditors. (8 marks)(b) Conoy Co designs and manufactures luxury motor vehicles. The company employs 2,500 staff and consistently makes a net profit of between 10% and 15% of sales. Conoy Co is not listed; its shares are held by 15 individuals, most of them from the same family. The maximum shareholding is 15% of the share capital.The executive directors are drawn mainly from the shareholders. There are no non-executive directors because the company legislation in Conoy Co’s jurisdiction does not require any. The executive directors are very successful in running Conoy Co, partly from their training in production and management techniques, and partly from their ‘hands-on’ approach providing motivation to employees.The board are considering a significant expansion of the company. However, the company’s bankers areconcerned with the standard of financial reporting as the financial director (FD) has recently left Conoy Co. The board are delaying provision of additional financial information until a new FD is appointed.Conoy Co does have an internal audit department, although the chief internal auditor frequently comments that the board of Conoy Co do not understand his reports or provide sufficient support for his department or the internal control systems within Conoy Co. The board of Conoy Co concur with this view. Anders Co, the external auditors have also expressed concern in this area and the fact that the internal audit department focuses work on control systems, not financial reporting. Anders Co are appointed by and report to the board of Conoy Co.The board of Conoy Co are considering a proposal from the chief internal auditor to establish an audit committee.The committee would consist of one executive director, the chief internal auditor as well as three new appointees.One appointee would have a non-executive seat on the board of directors.Required:Discuss the benefits to Conoy Co of forming an audit committee. (12 marks)

考题 Moonstar Co is a property development company which is planning to undertake a $200 million commercial property development. Moonstar Co has had some difficulties over the last few years, with some developments not generating the expected returns and the company has at times struggled to pay its finance costs. As a result Moonstar Co’s credit rating has been lowered, affecting the terms it can obtain for bank finance. Although Moonstar Co is listed on its local stock exchange, 75% of the share capital is held by members of the family who founded the company. The family members who are shareholders do not wish to subscribe for a rights issue and are unwilling to dilute their control over the company by authorising a new issue of equity shares. Moonstar Co’s board is therefore considering other methods of financing the development, which the directors believe will generate higher returns than other recent investments, as the country where Moonstar Co is based appears to be emerging from recession.Securitisation proposalsOne of the non-executive directors of Moonstar Co has proposed that it should raise funds by means of a securitisation process, transferring the rights to the rental income from the commercial property development to a special purpose vehicle. Her proposals assume that the leases will generate an income of 11% per annum to Moonstar Co over a ten-year period. She proposes that Moonstar Co should use 90% of the value of the investment for a collateralised loan obligation which should be structured as follows:– 60% of the collateral value to support a tranche of A-rated floating rate loan notes offering investors LIBOR plus 150 basis points– 15% of the collateral value to support a tranche of B-rated fixed rate loan notes offering investors 12%– 15% of the collateral value to support a tranche of C-rated fixed rate loan notes offering investors 13%– 10% of the collateral value to support a tranche as subordinated certificates, with the return being the excess of receipts over payments from the securitisation processThe non-executive director believes that there will be sufficient demand for all tranches of the loan notes from investors. Investors will expect that the income stream from the development to be low risk, as they will expect the property market to improve with the recession coming to an end and enough potential lessees to be attracted by the new development.The non-executive director predicts that there would be annual costs of $200,000 in administering the loan. She acknowledges that there would be interest rate risks associated with the proposal, and proposes a fixed for variable interest rate swap on the A-rated floating rate notes, exchanging LIBOR for 9·5%.However the finance director believes that the prediction of the income from the development that the non-executive director has made is over-optimistic. He believes that it is most likely that the total value of the rental income will be 5% lower than the non-executive director has forecast. He believes that there is some risk that the returns could be so low as to jeopardise the income for the C-rated fixed rate loan note holders.Islamic financeMoonstar Co’s chief executive has wondered whether Sukuk finance would be a better way of funding the development than the securitisation.Moonstar Co’s chairman has pointed out that a major bank in the country where Moonstar Co is located has begun to offer a range of Islamic financial products. The chairman has suggested that a Mudaraba contract would be the most appropriate method of providing the funds required for the investment.Required:(a) Calculate the amounts in $ which each of the tranches can expect to receive from the securitisation arrangement proposed by the non-executive director and discuss how the variability in rental income affects the returns from the securitisation. (11 marks)(b) Discuss the benefits and risks for Moonstar Co associated with the securitisation arrangement that the non-executive director has proposed. (6 marks)(c) (i) Discuss the suitability of Sukuk finance to fund the investment, including an assessment of its appeal to potential investors. (4 marks)(ii) Discuss whether a Mudaraba contract would be an appropriate method of financing the investment and discuss why the bank may have concerns about providing finance by this method. (4 marks)

考题 Text 1 Ruth Simmons joined Goldman Sachs's board as an outside director in January 2000;a year later she became president of Brown University.For the rest of the decade she apparently managed both roles without attracting much criticism.But by the end of 2009 Ms.Simmons was under fire for having sat on Goldman's compensation committee;how could she have let those enormous bonus payouts pass unremarked?By February the next year Ms.Simmons had left the board.The position was just taking up too much time,she said.Outside directors are supposed to serve as helpful,yet less biased,advisers on a firm's board.Having made their wealth and their reputations elsewhere,they presumably have enough independence to disagree with the chief executive's proposals.If the sky,and the share price,is falling,outside directors should be able to give advice based on having weathered their own crises.The researchers from Ohio University used a database that covered more than 10,000 firms and more than 64,000 different directors between 1989 and 2004.Then they simply checked which directors stayed from one proxy statement to the next.The most likely reason for departing a board was age,so the researchers concentrated on those“surprise”disappearances by directors under the age of 70.They found that after a surprise departure,the probability that the company will subsequently have to restate earnings increases by nearly 20%.The likelihood of being named in a federal classaction lawsuit also increases,and the stock is likely to perform worse.The effect tended to be larger for larger firms.Although a correlation between them leaving and subsequent bad performance at the firm is suggestive,it does not mean that such directors are always jumping off a sinking ship.Often they“trade up,”leaving riskier,smaller firms for larger and more stable firms.But the researchers believe that outside directors have an easier time of avoiding a blow to their reputations if they leave a firm before bad news break,even if a review of history shows they were on the board at the time any wrongdoing occurred.Firms who want to keep their outside directors through tough times may have to create incentives.Otherwise outside directors will follow the example of Ms.Simmons,once again very popular on campus. We learn from Paragraph 2 that outside directors are supposed to be_____A.generous investors B.unbiased executives C.share price forecasters D.independent advisers

考题 Text 1 Ruth Simmons joined Goldman Sachs's board as an outside director in January 2000;a year later she became president of Brown University.For the rest of the decade she apparently managed both roles without attracting much criticism.But by the end of 2009 Ms.Simmons was under fire for having sat on Goldman's compensation committee;how could she have let those enormous bonus payouts pass unremarked?By February the next year Ms.Simmons had left the board.The position was just taking up too much time,she said.Outside directors are supposed to serve as helpful,yet less biased,advisers on a firm's board.Having made their wealth and their reputations elsewhere,they presumably have enough independence to disagree with the chief executive's proposals.If the sky,and the share price,is falling,outside directors should be able to give advice based on having weathered their own crises.The researchers from Ohio University used a database that covered more than 10,000 firms and more than 64,000 different directors between 1989 and 2004.Then they simply checked which directors stayed from one proxy statement to the next.The most likely reason for departing a board was age,so the researchers concentrated on those“surprise”disappearances by directors under the age of 70.They found that after a surprise departure,the probability that the company will subsequently have to restate earnings increases by nearly 20%.The likelihood of being named in a federal classaction lawsuit also increases,and the stock is likely to perform worse.The effect tended to be larger for larger firms.Although a correlation between them leaving and subsequent bad performance at the firm is suggestive,it does not mean that such directors are always jumping off a sinking ship.Often they“trade up,”leaving riskier,smaller firms for larger and more stable firms.But the researchers believe that outside directors have an easier time of avoiding a blow to their reputations if they leave a firm before bad news break,even if a review of history shows they were on the board at the time any wrongdoing occurred.Firms who want to keep their outside directors through tough times may have to create incentives.Otherwise outside directors will follow the example of Ms.Simmons,once again very popular on campus. It can be inferred from the last paragraph that outside directors____A.may stay for the attractive offers from the firm B.have often had records of wrongdoings in the firm C.are accustomed to stressfree work in the firm D.will decline incentives from the firm

考题 Text 1 Ruth Simmons joined Goldman Sachs's board as an outside director in January 2000;a year later she became president of Brown University.For the rest of the decade she apparently managed both roles without attracting much criticism.But by the end of 2009 Ms.Simmons was under fire for having sat on Goldman's compensation committee;how could she have let those enormous bonus payouts pass unremarked?By February the next year Ms.Simmons had left the board.The position was just taking up too much time,she said.Outside directors are supposed to serve as helpful,yet less biased,advisers on a firm's board.Having made their wealth and their reputations elsewhere,they presumably have enough independence to disagree with the chief executive's proposals.If the sky,and the share price,is falling,outside directors should be able to give advice based on having weathered their own crises.The researchers from Ohio University used a database that covered more than 10,000 firms and more than 64,000 different directors between 1989 and 2004.Then they simply checked which directors stayed from one proxy statement to the next.The most likely reason for departing a board was age,so the researchers concentrated on those“surprise”disappearances by directors under the age of 70.They found that after a surprise departure,the probability that the company will subsequently have to restate earnings increases by nearly 20%.The likelihood of being named in a federal classaction lawsuit also increases,and the stock is likely to perform worse.The effect tended to be larger for larger firms.Although a correlation between them leaving and subsequent bad performance at the firm is suggestive,it does not mean that such directors are always jumping off a sinking ship.Often they“trade up,”leaving riskier,smaller firms for larger and more stable firms.But the researchers believe that outside directors have an easier time of avoiding a blow to their reputations if they leave a firm before bad news break,even if a review of history shows they were on the board at the time any wrongdoing occurred.Firms who want to keep their outside directors through tough times may have to create incentives.Otherwise outside directors will follow the example of Ms.Simmons,once again very popular on campus. According to the researchers from Ohio University,after an outside director's surprise departure,the firm is likely to_____A.become more stable B.report increased earnings C.do less well in the stock market D.perform worse in lawsuits

考题 Text 1 Ruth Simmons joined Goldman Sachs's board as an outside director in January 2000;a year later she became president of Brown University.For the rest of the decade she apparently managed both roles without attracting much criticism.But by the end of 2009 Ms.Simmons was under fire for having sat on Goldman's compensation committee;how could she have let those enormous bonus payouts pass unremarked?By February the next year Ms.Simmons had left the board.The position was just taking up too much time,she said.Outside directors are supposed to serve as helpful,yet less biased,advisers on a firm's board.Having made their wealth and their reputations elsewhere,they presumably have enough independence to disagree with the chief executive's proposals.If the sky,and the share price,is falling,outside directors should be able to give advice based on having weathered their own crises.The researchers from Ohio University used a database that covered more than 10,000 firms and more than 64,000 different directors between 1989 and 2004.Then they simply checked which directors stayed from one proxy statement to the next.The most likely reason for departing a board was age,so the researchers concentrated on those“surprise”disappearances by directors under the age of 70.They found that after a surprise departure,the probability that the company will subsequently have to restate earnings increases by nearly 20%.The likelihood of being named in a federal classaction lawsuit also increases,and the stock is likely to perform worse.The effect tended to be larger for larger firms.Although a correlation between them leaving and subsequent bad performance at the firm is suggestive,it does not mean that such directors are always jumping off a sinking ship.Often they“trade up,”leaving riskier,smaller firms for larger and more stable firms.But the researchers believe that outside directors have an easier time of avoiding a blow to their reputations if they leave a firm before bad news break,even if a review of history shows they were on the board at the time any wrongdoing occurred.Firms who want to keep their outside directors through tough times may have to create incentives.Otherwise outside directors will follow the example of Ms.Simmons,once again very popular on campus. The author's attitude toward the role of outside directors is_____A.permissive B.positive C.scornful D.critical

考题 Text 1 Ruth Simmons joined Goldman Sachs's board as an outside director in January 2000;a year later she became president of Brown University.For the rest of the decade she apparently managed both roles without attracting much criticism.But by the end of 2009 Ms.Simmons was under fire for having sat on Goldman's compensation committee;how could she have let those enormous bonus payouts pass unremarked?By February the next year Ms.Simmons had left the board.The position was just taking up too much time,she said.Outside directors are supposed to serve as helpful,yet less biased,advisers on a firm's board.Having made their wealth and their reputations elsewhere,they presumably have enough independence to disagree with the chief executive's proposals.If the sky,and the share price,is falling,outside directors should be able to give advice based on having weathered their own crises.The researchers from Ohio University used a database that covered more than 10,000 firms and more than 64,000 different directors between 1989 and 2004.Then they simply checked which directors stayed from one proxy statement to the next.The most likely reason for departing a board was age,so the researchers concentrated on those“surprise”disappearances by directors under the age of 70.They found that after a surprise departure,the probability that the company will subsequently have to restate earnings increases by nearly 20%.The likelihood of being named in a federal classaction lawsuit also increases,and the stock is likely to perform worse.The effect tended to be larger for larger firms.Although a correlation between them leaving and subsequent bad performance at the firm is suggestive,it does not mean that such directors are always jumping off a sinking ship.Often they“trade up,”leaving riskier,smaller firms for larger and more stable firms.But the researchers believe that outside directors have an easier time of avoiding a blow to their reputations if they leave a firm before bad news break,even if a review of history shows they were on the board at the time any wrongdoing occurred.Firms who want to keep their outside directors through tough times may have to create incentives.Otherwise outside directors will follow the example of Ms.Simmons,once again very popular on campus. According to Paragraph 1,Ms.Simmons was criticized for_____A.gaining excessive profits B.failing to fulfill her duty C.refusing to make compromises D.leaving the board in tough times

考题 资料:From: Iris Wu To: Tim Appleby Subject: Marketing issues Date:May 3 Hi Tim,Can you schedule a conference call for all our marketing directors, me included, to discuss the launch of the new appliance line? Please note that our offices in the Philippines and France are respectively, twelve and six hours ahead of us. Threfore, kindly remind the directors that the call may have to occur outside of business hours. The meeting should be arranged before the new product presentations on May 26. I recommend scheduling the call on May 14 or 15 to allow sufficient time for the appliance information charts to be updated with any suggested changes. Should a different date be more convenient for the other directors, please check with me to confirm my availability? Thank you Iris Who most likely is Ms. Wu?A.graphic designer B.marketing director C.An appliance technician D.An administrative assistant

考题 资料:From: Iris Wu To: Tim Appleby Subject: Marketing issues Date:May 3 Hi Tim,Can you schedule a conference call for all our marketing directors, me included, to discuss the launch of the new appliance line? Please note that our offices in the Philippines and France are respectively, twelve and six hours ahead of us. Threfore, kindly remind the directors that the call may have to occur outside of business hours. The meeting should be arranged before the new product presentations on May 26. I recommend scheduling the call on May 14 or 15 to allow sufficient time for the appliance information charts to be updated with any suggested changes. Should a different date be more convenient for the other directors, please check with me to confirm my availability? Thank you Iris Why was the e-mail sent to Mr. Appleby?A.To notify him of a conference date B.To ask him to share his marketing ideas C.To approve his international business trip D.To request that he organize a telephone meeting

考题 资料:From: Iris Wu To: Tim Appleby Subject: Marketing issues Date:May 3 Hi Tim,Can you schedule a conference call for all our marketing directors, me included, to discuss the launch of the new appliance line? Please note that our offices in the Philippines and France are respectively, twelve and six hours ahead of us. Threfore, kindly remind the directors that the call may have to occur outside of business hours. The meeting should be arranged before the new product presentations on May 26. I recommend scheduling the call on May 14 or 15 to allow sufficient time for the appliance information charts to be updated with any suggested changes. Should a different date be more convenient for the other directors, please check with me to confirm my availability? Thank you Iris When are presentations scheduled?A.on May 3 B.on May 14 C.on May 15 D.on May 26