Page 12 - CIMA SCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – STRATEGIC CASE STUDY

The Audit committee should have at least three, or in the case of smaller companies two,
independent non-executive directors. In smaller companies the company chair may be a member
of, but not chair, the committee in addition to the independent non-executive directors, provided
he or she was considered independent on appointment as Chair. At least one member of the
audit committee should have recent and relevant financial experience. Novak could satisfy most
of the criteria regardless of whether they were considered small or not, although, as the seventh
largest pharmaceutical company in the world, it is unlikely they could be considered small. An
issue could be the uncertainty about whether any of the NEDs have any recent and relevant
financial experience. No financial experience is specifically mentioned, although Marcia Conelli is
the most likely from her long and distinguished career in the banking industry.

The Remuneration committee should have at least three, or in the case of smaller companies two,
independent non-executive directors. In addition the company chair may also be a member of,
but not chair, the committee if he or she was considered independent on appointment as chair.
For Novak, either criteria could be met, so in theory it could exist.

The Nomination committee is usually expected to have a majority of NEDs, so again could feasibly
be in existence at Novak.

As there are only three NEDs they are likely to be on all the committees, which would give them
significant power and a significant workload.

Overall

The biggest concern would be the lack of HR director. For an organisation with so many
employees, this would be especially so if further acquisitions were to be made. Also concern
would be the number of NEDs and the existence/make-up of the compulsory committees. And
finally, given the digital age we live in now, a lack of skills/experience in IT.

We must also be prepared for additional information in the unseen to present other potential
problems, such as lack of financial experience within the NEDs, or a key Board member wishing to
leave.

EXERCISE 2

Risks

Government expenditure
The government funds healthcare in Cronland so is likely to be closely scrutinised and funding
could be cut. The article in which the PRA rejects Werstra’s asthma drug Denovax shows that
funding is limited.

Competitive environment
In the pre-seen there are 16 different companies mentioned with between 2 and 10% market
share, mention is also made of how volatile the market can be depending on the success of the
drugs developed.

52 KAPLAN PUBLISHING