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

CIMA AUGUST 2018 – STRATEGIC CASE STUDY

CHAPTER FIVE – P3

EXERCISE 1 – ANALYSIS OF CORPORATE GOVERNANCE

FNG is a large privately owned multimedia business in Borland and is not listed at the moment
and so therefore does not need to comply or explain to Corporate Governance guidelines.
However they are competing with listed companies – the three largest newspaper publishing
groups in Borland are all listed on the Borland stock exchange – and so good governance
principles will help them to compete.

Another consideration, if they are to float on the Borland stock market – although this seems
unlikely given their desire to maintain the ‘family’ ethos – having the principles of a good
governance structure already in place will make the process much easier.

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).

The agency issue is reduced at FNG as 60% of the business is owned by the founder family of FNG
– The Finch family – who also have two key figures on the Board. The two key figures are the
Chairman and Chief Operating Officer, who own 16% of the business. If the Board were not to act
in the best interests of the shareholders they would be jeopardising their own interests. As a
result, at present there should be a reduction is in the need (and costs) of monitoring the Board.

Assuming that they will apply corporate guidelines for good governance, or to help a future
flotation or both, the following are considerations they must review.

Board Balance

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

We know nothing about the skills or experience of the Board.

We can comment on the roles listed on the Board, there appears to be a good mix of roles with
CEO, COO & lots of core functions represented at a strategic level (Finance, HR, Sales/Advertising,
Production and Content).

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

IT falls under the remit of Den Rice as CFO, reporting into Den is an IT manager. This could be an
area that FNG need to review as they continue to expand their digital offering.

There is no mention of a legal department, despite litigation featuring on the risk register, albeit
with a low risk rating. Should any issues occur it could be very serious and costly for FNG if they do
not have appropriate expertise in this area.

FNG have three Non-Executive Directors (NEDs), again we know nothing about their experience.

48 KAPLAN PUBLISHING