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when closing stock levels increase. When these stock levels eventually get sold, lower profits may
be declared and these managers may have earned their bonuses or gotten promoted in the group
leaving behind poor performance in subsequent years. Excessive internal charges suggest

managers are dishonestly attempting to declare earnings and earn bonuses at the expense of the
overall group.

5.2 Recommendation

The bonus system should be de-linked from Underlying EBIT and ROCE linked rather to Economic

Value Added (EVA). In the case of production ramp ups, the system for determining Underlying EBIT
should be shifted from absorption costing to marginal costing (MC). In the case of excessive internal
charges, group must device and enforce an appropriate transfer pricing system.

5.2 Operational risk and industrial action in Australia

The CEO, Mike Cutika, has issued instructions to ignore dire safety warnings and resume production
at an unsafe mineshaft mainly concerned about profits and an upcoming quarterly trading update

and not the lives of employees. We are putting profits ahead of people and it would be negligence.
Furthermore, It would be dishonest to tell investors that the mine shutdown is due to a minor
operational issue without having done any investigations. 12 injuries and 2 fatalities going
unreported means safety records are being falsified. This begs the question whether our improving

safety performance (Appendix 2.5 –case study) is indeed credible?

5.2 Recommendation

The instruction to resume production should be overturned. Nigel Payne should not inform investors
the mine shutdown is a minor operational problem without first conducting a proper investigation. We

need to audit the safety management reporting process and perpetrators of false safety reports
should be brought to book. The CEO needs to be reprimanded and cautioned against excessive
compulsion to deliver on financial and production targets at the expense of critical safety
imperatives.

6. CONCLUSION

Let’s re-iterate and summarise the key actions the Board must now take:

1. Invest US$130 million towards a new mine shaft, investigate safety management and

reporting in Australia and capitulate on unions to avert 7-day notice to strike, then threaten
retrenchments and hire contract workers to break protected strike –most of our US$5.8billion
cost savings needs to come from employee costs;
Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2017'
www.charterquest.co.za | Email: thecfo@charterquest.co.za