oy joined the board of Mulungushi and Company, a large retailer, as finance director earlier this year. Whilst she was glad to have finally been given the chance to become finance director after several years as a financial accountant, she also quickly realised that the new appointment would offer her a lot of challenges. In the first board meeting, she realised that not only was she the only woman but she was also the youngest by many years. Mulungushi was established almost 100 years ago. Members of the Mulungushi family have occupied senior board positions since the outset and even after the company’s flotation 20 years ago a member of the Mulungushi family has either been executive chairman or chief executive. The current longstanding chairman, George Mulungushi, has already prepared his slightly younger brother, Jacob (also a longstanding member of the board) to succeed him in two years’ time when he plans to retire. The Mulungushi family, who still own 40% of the shares, consider it their right to occupy the most senior positions in the company so have never been very active in external recruitment. They only appointed Joy because they felt they needed a qualified accountant on the board to deal with changes in international financial reporting standards. Several former executive members have been recruited as non-executives immediately after they retired from full-time service. A recent death, however, has reduced the number of non-executive directors to two. These sit alongside an executive board of seven that, apart from Joy, have all been in post for over ten years. Joy noted that board meetings very rarely contain any significant discussion of strategy and never involve any debate or disagreement. When she asked why this was, she was told that the directors had all known each other for so long that they knew how each other thought. All of the other directors came from similar backgrounds, she was told, and had worked for the company for so long that they all knew what was ‘best’ for the company in any given situation. Joy observed that notes on strategy were not presented at board meetings and she asked George Mulungushi whether the existing board was fully equipped to formulate strategy in the changing world of retailing. She did not receive a reply. Required: (a) Explain ‘agency’ in the context of corporate governance and criticise the governance arrangements of Mulungushi and Company. (b)Explain the roles of a nominations committee and assess the potential usefulness of a nominations committee to the board of Mulungushi and Company. (c) Define ‘retirement by rotation’ and explain its importance in the context of Mulungushi and Company.
Joy joined the board of Mulungushi and Company, a large retailer, as finance director earlier this
year. Whilst she was glad to have finally been given the chance to become finance director after several years as a financial accountant, she also quickly realised that the new appointment would offer her a lot of challenges. In the first board meeting, she realised that not only was she the only woman but she was also the youngest by many years. Mulungushi was established almost 100 years ago. Members of the Mulungushi family have occupied senior board positions since the outset and even after the company’s flotation 20 years ago a member of the Mulungushi family has either been executive chairman or chief executive. The current longstanding chairman, George Mulungushi, has already prepared his slightly younger brother, Jacob (also a longstanding member of the board) to succeed him in two years’ time when he plans to retire. The Mulungushi family, who still own 40% of the shares, consider it their right to occupy the most senior positions in the company so have never been very active in external recruitment. They only appointed Joy because they felt they needed a qualified accountant on the board to deal with changes in international financial reporting standards. Several former executive members have been recruited as non-executives immediately after they retired from full-time service. A recent death, however, has reduced the number of non-executive directors to two. These sit alongside an executive board of seven that, apart from Joy, have all been in post for over ten years. Joy noted that board meetings very rarely contain any significant discussion of strategy and never involve any debate or disagreement. When she asked why this was, she was told that the directors had all known each other for so long that they knew how each other thought. All of the other directors came from similar backgrounds, she was told, and had worked for the company for so long that they all knew what was ‘best’ for the company in any given situation. Joy observed that notes on strategy were not presented at board meetings and she asked George Mulungushi whether the existing board was fully equipped to formulate strategy in the changing world of retailing. She did not receive a reply.
Required:
(a) Explain ‘agency’ in the context of corporate governance and criticise the
governance arrangements of Mulungushi and Company.
(b)Explain the roles
of a nominations committee and assess the potential usefulness of a nominations
committee to the board of Mulungushi and Company.
(c) Define ‘retirement by rotation’ and explain its importance in the context of
Mulungushi and Company.
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