Page 14 - CIMA SCS Workbook November 2018 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

sanctions are appropriate must be actioned so that other Novak employees know that fraud will
not be tolerated. The sanctions may well vary with the size of the fraud, minor fraud may carry
internal disciplinary, however more major fraud could lead to criminal prosecution, termination of
contract and civil proceedings to try and recover any losses.

Part of the action may well involve communications to Novak’s stakeholders, from shareholders
to doctors and pharmaceutical suppliers so that they know what has happened and what action is
being taken. If Novak is not transparent in dealings with stakeholders then the news may come
from the media who may sensationalise the story, and it would be more likely to have a
detrimental impact on the share price than a clear communication from us detailing what
happened and what action steps we are taking.

EXERCISE 2

Briefing Paper

To: Dirk Lepain
From: Senior Manager
Subject: Succession planning and board structure

Succession planning

As part of the Cronland Code of Corporate Governance listed companies are required to have
three main committees and they are involved in some of the activities that you mention. I will go
through each one and consider the implications for Novak and our stakeholders.

Remuneration committee

Remuneration is a key part of corporate governance, as the directors will take a significant
amount of motivation from the level of remuneration they receive, so the performance of Novak’s
own directors could be significantly affected by the way this committee is set up and how it
discharges its duties. For a company the size of Novak a remuneration committee should have at
least three, independent non-executive directors. In addition the company chair may also be a
member of, but not chair, the committee if she was considered independent on appointment as
chair.

The remuneration committee should have delegated responsibility for setting remuneration for
all executive directors and the chair, including pension rights and any compensation payments.
The committee should also recommend and monitor the level and structure of remuneration for
senior management. Senior management usual means the first layer of management below Board
level, but can be determined on a company by company basis.

This is one of the biggest controls Novak has to assess the performance of any director, & Anton
Frind would be no exception. Whatever remuneration package is determined, it is essential to
ensure that all our directors have a clear objective to do a good job for the stakeholders of the
company. The remuneration packages should motivate all our directors and specifically for Anton
Frind it should motivate him to ensure the research and development division is performing as

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