NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

FACULTY OF COMMERCE: GRADUATE SCHOOL OF BUSINESS

GMBA 5264: CORPORATE GOVERNANCE AND ETHICS: INDIVIDUAL
ASSIGNMENT

QUESTION 1: Case study on boardroom deliberations

It should have been an ordinary board meeting. Agenda papers had been circulated and the board
was in the midst of a discussion, faced with what appeared to be a relatively simple decision. All
the directors had grappled with large investment decisions before. But this one was different.
‘This investment holds significant benefits for the economy.’ Argued one director. ‘The fact that
the company will not meet its investment hurdle rates should not be determining factor.’
‘Yes,’ was the quick response from another, ‘but should this board be promoting economic
growth at the expense of this company?’ ‘In fact, we don’t even know if this makes economic
sense. It may be more efficient to pay a larger dividend to government. Then government can
spend the money on its economic priorities’ added a third.
Another board member introduced a new line of argument. ‘Ignoring for the moment the
economic considerations’ she said, ‘Is government as shareholder comfortable with the
diversification of the company’s activities into these products and markets? After all they
represent risky investments and could impact on national customers.’ This was met with
vehement objection. ‘This board runs this company.’ Emphasized one of her colleagues irritably,
‘not the shareholder!’
‘There is nothing wrong with the shareholder providing guidance on the mandate and main
purpose of the company,’ she countered. ‘Perhaps we should have done more to clarify such
expectations.’ The mandate is sufficiently clear,’ pointed out the chairperson. ‘The articles of
association allow for this type of investment’
‘But if the investment does not meet our hurdle rates, how will this shortfall be made up?’ asked
another board member anxiously. ‘Are we sure that the shareholder will accept a lower return on
equity? Or will this board be held accountable for failing to meet its performance targets? In
which case, will I as a director be liable for failing to discharge my fiduciary duties?’
Three hours had passed. Energy levels were dropping and the meeting was running behind
schedule with no resolutions in sight. What should have been a relatively routine decision turned
into an unfocussed and indecisive discussion. The board was paralysed. There was no consensus
on the main purpose of the company and no agreement on the criteria to be applied to this kind
of decision.
Question 1 (a)
Taking into account corporate governance principles you have studied, did the board in the case
study come to the correct decision? Give reasons. [25 marks]

Question 1 (b)

If you were the board in the case study, would you have come to a different decision? Give
reasons. [10 marks]

QUESTION 2

‘To be of value, corporate social responsibility (CSR) activities and management must conform
to the unique cultures and histories of the various localities in which a company operates’. Using
an example of any multinational company of your choice discuss this statement.

[15 marks]