Page 11 - CIMA SCS Workbook November 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

There is no HR director, Human Resources falls under the remit of Mary Tang as Production
Director. This seems strange given that Novak employs 108,000 people worldwide. While a
significant number will be production-related the workforce is diverse and at least 3,000 of the
employees work in the 2 research centres, these appear to be highly sought after. Should any
issues occur they may not be handled well and as the staff are so vital any losses could be costly
for Novak.

Novak have three Non-Executive Directors (NEDs), all of whom currently appear to meet the
criteria of independence. Two of them – Professor Winston Alade & Dr Henry Wong – bring even
more expertise from the pharmaceuticals sector and Marcia Conelli appears to bring financial
expertise although this is implied rather than explicitly stated.

Under corporate governance guidelines a Board should be balanced in terms of the number of
Executive and NED roles. There should be the same number of NEDs as Executives (excluding the
Chair), that is Executive Directors should not outnumber the NEDs. In addition, in order to ensure
the NEDs represent the interests of the shareholders they should be independent. A smaller
company should have at least two independent NEDs.

Novak only has three NEDs versus the six directors (this excludes the chair) therefore the main
criteria is not met. From the information given the NEDs appear to be independent and they will
hopefully be able to provide sound business advice to aid the running of the company. NEDs are
meant to challenge the Executives and act on behalf of the shareholders. This is less likely to
happen at Novak if, firstly, there are not enough NEDs, but also if there is any reason why they are
not independent.

CEO and Chair roles

These roles have been split at Novak which is compliant with most countries’ Corporate
Governance guidance.

The Chair’s role is to run the Board; the CEO’s role is to run the company. Placing both in one
person’s hands may give them too much power. Given that Novak would not have sufficient NEDs
to keep such power ‘in check’ it is important that it is not in one person’s hands.

The Chair is the representative of the shareholders – they should be able to communicate any
matters of concern to the Chair. If the Chair is not independent the Board should appoint a senior
Independent NED to perform this role. The Chair at Novak is Dorothy Novak, a member of the
founding family, so may have slightly different interests than the shareholders as she may
prioritise Novak family ideals over the broader needs of shareholders.

Committees

There is currently no mention of committees at Novak although that does not mean they do not
exist.

All committees make use of NEDs under most Corporate Governance Codes. The compulsory
committees are: Remuneration, Nominations and Audit committee.

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