UNIVERSITY OF ZIMBABWE

2016 May/June Examinations

MBA565 : CORPORATE GOVERNANCE AND BUSINESS ETHICS

Faculty: COMMERCE

Department: GRADUATE SCHOOL OF MANAGEMENT

Duration: 3 HOURS

Examiner: DR D. MADZIKANDA

Authorized Materials: None

INSTRUCTIONS:
1. This paper contains Six (6) Questions
2. Answer Question One (40 marks); and Any other Three Questions (20 marks each)
3. Start each question on a new page
4. Marks will be awarded for using examples from Cases you have studied, lecturer’s
handout and additional reading, and/or from your own life and work experiences.
5. This question paper comprises Four (4) printed pages

NB: DO NOT TURN OVER THE QUESTION PAPER OR COMMENCE WRITING

UNTIL INSTRUCTED TO DO SO.

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QUESTION 1 (Compulsory – 40 marks)

CASE STUDY: TIME INVESTMENTS LIMITED

Time Investments has been in the construction business for five years. In these five
years, it has managed to achieve a remarkable growth rate with branches in the five
major cities in the country and its headquarters is in Harare.

The company is one of the group of companies owned by Mr. Fix. Mr. Fix is a former
top civil servant. He is the Chairman and Managing Director of Time. The Deputy
Managing Director is Mr. Harm, who is the son of the Mayor of the capital city. Time has
6 board members, two of them: the Managing Director and the Deputy Managing
Director are executive. Two are top civil servants who have known Mr. Fix since his civil
service days. One of the two heads the Ministry of Labour and Employment Creation.
The other board member is a City Engineer of the capital city and the sixth is the
Managing Director of one of the major suppliers to Time Investments. Mr. Fix also has a
substantial shareholding in this company.

Time has recently had a number of problems.

Strike action
The company has had a lengthy strike by the majority of its workers. They complain of
unfair labour practices and unwarranted dismissals. Time Investments professes
innocence on the dismissals issue as it says these have always been sanctioned by the
relevant government ministry. Many of these have not been taken to court except two
cases involving a former manager who was recently awarded a substantial amount in
damages and one which is backed by the union where the representative is challenging
dismissal on grounds of insubordination.

Besides these issues, the workers are unhappy that they have not been paid their
weekly wages for the past two weeks. The company says it has no money since the
company has hit a bad patch. Workers argue though, that the company is badly
managed by a management which is only interested in buying new cars for themselves
without being interested in the welfare of the workers of the company.

Management is also said to be of individuals whose major qualifications are who they
are connected to rather than the value they can add to the company. There is no clear
Human Resources Management policy at the company, resulting in poor recruitment of
staff and anomalies in the compensation structures of the company.

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These appear to have been the trigger of the strike action. Workers are also accusing
the company management of lack of due care, skill, and the numerous complaints from
customers and the use of company resources, including labour, on non-company
projects.

The capital city has lodged a complaint with the arbitration centre (as agreed in the
contract) on two issues;
the two year delay in the completion of the project and
poor workmanship on the completed part of the project.

The poor workmanship detected by an independent civil engineering consultancy which

was brought in by the full council after it overruled the assertions by the Mayor and City
Engineer that, except for the late completion of the project everything was alright.

Uncompleted double storey building

The building was owned by the Municipality Workers’s Pension Fund, has developed
major cracks to the super structure. The owners of the building have taken up the issue
with the courts which have ordered Time Investments Ltd to carry out the repairs and
pay out damages for loss of earnings to the company. This will result in millions of
dollars in expenditure.

Cash flow Problems

The company has been running on an overdraft facility which has now been cancelled
by the bank. This position has caused the cash flow problems resulting in the company
failing to meet wages for the past two weeks.
Financial Accounts
According to the latest accounts, the company awarded a hefty dividend a few months
ago. The total dividend paid out was as much as $20 million. The same accounts reflect
that the company has debtors of $120 million. Of these $40 million are for companies
which are partly owned by Mr. Fix. Further scrutiny shows that these debts are not
being serviced regularly.

The accounts also show that $45 million was spent on capital expenditure of 15% of this
amount was spent on replacing the fleet of cars for management and another 5% on
improving the ablution facilities used by the Managing Director. The rest was used to
buy construction equipment. According to the notes in the accounts, the amount spent
on productive capital equipment and plant is far below the company’s needs.

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Required:
(a) Establish the corporate governance issues in this case and their significance.
(20 marks)

(b) Explain how should the organization go about addressing these issues in the case.
(20 marks)
QUESTION 2
(a) Based on O’Shea’s (2005) work, Code development, adoption, and compliance are
directly related to issues surrounding the governance of the firm, and in particular to
all the interactions that a director has inside and outside the firm. Discuss around
O’Shea’s six (6) governance practices and the importance of each. (10 marks)

(b) Making references to the Zimbabwean Governance Code (2015), discuss whether
more stringent governance rules with mandatory implementation are needed to
increase compliance or whether it should be left to the discretion of management in
Zimbabwe. (10 marks)

QUESTION 3
(a) It is argued that ‘poor corporate governance lies at the heart of poor performance of
State Owned Enterprises (SOEs) throughout the world’. Discuss the factors that
negatively affect corporate governance issues in SOEs in Zimbabwe. (10 marks)

(b) Giving examples, discuss whether corporate governance in SOEs is worse or better
off than that in publicly listed companies in. (10 marks)

QUESTION 4
Critically assess the degree to which you consider Corporate Social Responsibility (CSR)
to be an effective strategy in gaining competitive advantage. (20 marks)

QUESTION 5
Compare and contrast consequential and deontological theories. Explain which of these
ethical theories provide clear and practical guidelines for the resolution of morally
ambiguous situations. (20 marks)

QUESTION 6
Evaluate the degree to which moral philosophy transcends academic analysis of ethics in
business to provide practical tools for the purposes of executive decision-making. (20 marks)

END OF EXAMINATION PAPER

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