Page 10 - CIMA SCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – STRATEGIC CASE STUDY

CHAPTER FIVE – P3

EXERCISE 1 – ANALYSIS OF CORPORATE GOVERNANCE

Novak is currently the seventh largest pharmaceutical company in the world and is quoted on the
Cronland Stock Exchange; therefore it must adhere to the Cronland Code of Corporate
Governance.

Corporate governance guidelines exist so that the needs of shareholders are met. Monitoring
exists so that directors are kept ‘in check’ and minimising any problems arising from the agency
relationship between principals (shareholders) and agents (directors).

What the Cronland Code of Corporate Governance stipulates is unclear, as is whether it is rules
based or principles based. Given that rules based means that a quoted company must comply or
face a significant sanction, this suggests the regulations in Cronland are principles based. The
reason for this is that while Novak has some examples of good corporate governance, they are
not perfect and there is no mention of any sanctions against the company.

Assuming that the Cronland Code of Corporate Governance is similar to the UK Corporate
Governance Code principles based approach we can review the following:

Board Balance

A Board should be balanced in terms of skills, experience and diversity. Such a structure will help
enable the Novak Board to deal with strategic and operational issues.

The members of the Board have a good range of skills and experience in their field.

CEO Dirk Lepain has extensive pharmaceuticals experience both from training as a pharmacist but
also in working and being COO at a major chain of retail pharmacies. Director of Legal Affairs
Juliane Horst completed a law degree and most recently specialised in intellectual property
disputes; Director of Sales and Marketing Fiona Dubin has previous experience in marketing in a
variety of industries, although has never worked in the pharmaceuticals industry prior to joining
Novak. Randal Edwards is a professionally qualified accountant and has been a Finance Director
for another quoted healthcare provider; Director of Research Dr Anton Frind has extensive
experience in research into pharmaceutical products, he is Novak’s longest serving director having
been on the Board since 2009. Finally there is Dr Mary Tang who is Director of Production and
also has good pharma experience. Together their skills should serve Novak well from a strategic
perspective. They have all served at least 2 years on the Board at Novak and so should be familiar
with the company and the day to day operations.

There are two areas of business operation that do not appear to be well served by the Board,
these are IT and HR.

IT is not mentioned anywhere either in the Board background or the Organisation Chart on page
16. This could be an area that Novak needs to review as IT plays a more significant role in
developing treatments and also making sure that Intellectual Property is secure from external
parties who may be interested for a variety of reasons.

50 KAPLAN PUBLISHING