Corporate Governance

Answer questions 1 and 2 respectively
Q1. CASE STUDY – 20 MARKS
Anthony Kulungugu is the Chief Executive Officer (CEO) of “Suru Nipa Na Gyaai Samai” Ltd., a seventy five per cent (75%) state-owned company. He was appointed by the Company five years ago. The economic fortunes of the company had dwindled prior to his appointment. Mr. Kulungugu was therefore appointed and charged with the mandate to revamp and restore the Company to its glorious position as the leader of that sector of business and move the Company in a path towards sustained growth and development. In order to accomplish this mission, the CEO instituted a wide range of measures, including the following:

➢ Re-orienting the mindset of all and sundry within the Company to the realities on the ground.
➢ Introducing radical transformational policies and programmes.
➢ Imbibing everyone, including factory employees with strong sense of ethical virtues of the Company, to the extent that, the outside world perceives the Company by its core corporate values.

As the Chief Executive Officer, Mr. Kulungugu is very passionate about customer satisfaction. According to him, the success of a company is based on customer loyalty. For this reason, customer satisfaction should always engage the attention of the Company. By his ethical orientation, Mr. Kulungugu is always committed to punctuality, deep receptivity to new ideas and change, and above all, fair-minded. Humility is his hallmark.

Without due regard to his position as the CEO of the Company, Mr. Kulungugu considered everyone, including factory employees as colleagues.

The innovative measures he initiated begin to produce the needed results as the company emerged as the overall best performing company of the sector in the second year of his tenure as the CEO of the Company. In spite of the radical policies he introduced, his popularity soared, growing from strength to strength among the pyramidal phase of the Company, including shareholders, Board of Directors, Management and employees. Employees of the Company in particular, look up to him as a source of inspiration. For this reason, they are prepared to die a little hard to enable him achieve set organizational goals. Noted for his punctuality, Mr. Kulungugu is always the first to clock in at 07:00 GMT and the last to clock out at 21:00 GMT.

Be that as it may, on Friday, December 20, 2019, as the CEO prepared to leave his residence for a Board of Directors meeting at his office scheduled for 07:30 GMT, he had an SOS call to help his next-door-neighbour who was in a state of comatose to the Korle-Bu Teaching Hospital for medical attention. Mr. Kulungugu resolved to help send his neighbour to the hospital. On his way to the hospital, he encountered this nose-to-tail traffic. As he was stuck in this traffic, reflecting deeply over the effect that his failure to attend the BODs meeting on time would have on his image as a very consistent, persistent, and repetitive punctualist, the next motorist pulled out from behind him and created an additional “traffic zone”. Mr. Kulungugu could not help matters, but to follow up with the excuse that he would be able to get to the hospital on time for doctors to attend to his comatose friend.

As the CEO of the company, Mr. Kulungugu headed a team of procurement to supervise a bidding process in which “Suru Ananse Nie” Ltd. duly won in line with the provisions of the Public Procurement Law, Act 633 (as amended). Two years later, a forensic audit conducted by Anderson & Associates on the recommendations of the Public Accounts Committee (PAC) of Parliament revealed that “Suru Ananse Nie” Ltd. was actually owned by Kulungugu and managed by his nephew at the time that the transaction took place. It was further discovered that the bidding process was fraught with a number of irregularities. On the basis of this revelation, the Public Accounts Committee (PAC) of Parliament recommended to the Ghanaian government that the CEO should be prosecuted for his conduct. The CEO was therefore arraigned before the Fast Track High Court, Commercial Division, Accra – Ghana for willfully causing financial loss to the state. But the CEO through his legal team maintains that his ownership of “Suru Ananse Nie Ltd.” as a part time business and knowledge of its Managing Director did not influence the bid process. He therefore concluded that he had no case to answer before the Court since the company won the contract on merit. Recommended by the Board of Directors of “Suru Nipa Na Gyaai Samai” Ltd., Mr. Kulungugu and the Chairman of the Board prepared a Memorandum, sanctioning the release of funds for a trip to the United States of America in order to understudy a proposed project for later implementation in Ghana. The delegation was made up of all members of the Board, including the Chairman, the CEO and the Director of Finance of the Company. All those who matter with the authority to release the funds for the said trip signed the Memorandum, except the Director of Finance. The Finance Director took a second look at the

Memorandum and the attached budget and suspected that there was a fundamental issue with the budget in relation to the monetary figures contained. He took it to the CEO for further clarifications on the figures involved. But the CEO did not take kindly to the request for further clarifications by the Finance Director. The CEO wondered, if the Director was not at the Board meeting that approved the budget for the trip. That, if there were any questions regarding the budget, why were they not posed at the Board meeting for further clarifications, when all and sundry of the Board were present? The Director of Finance said hmmmm to himself and left for his office. He took a look once more at the budget and shook his head. Unable to stand this, he went back to the CEO and mentioned that he suspected that the budget was inflated. The CEO yelled, “Go and sign the Memorandum for the release of the funds for the trip or be shown the exit”. The Director left for his office and signed the memorandum for the final release of the funds for the trip. The trip was then made possible and all the members of the Board, including the Director of Finance participated fully.

Two years later, a forensic audit conducted by Anderson & Associates on the recommendations of the Public Accounts Committee (PAC) of Parliament revealed that the budget for the trip was in excess of $300,000.00. Consequently, the PAC recommends the prosecution of the Board of the Company for causing financial loss to the Ghanaian state. The Board is therefore arraigned before the Fast Track High Court, Commercial Division, Accra – Ghana for willfully causing financial loss to the state. But strangely enough, the Director of Finance engaged lawyers different from those of the Board. The lead Counsel for the Director of Finance prays the Court to acquit and discharge their client and prosecute the rest of the members of the Board, because their client detected this loss to the state in advance and brought it to the attention of the CEO, who did not budge and rather threatened to fire their client, if he did not sign the Memorandum for the release of the funds for the said trip. By signing the Memorandum, the Counsel maintains, their client was only “obeying instructions from above”. He therefore concluded that their client had no case to answer as he was only a subordinate officer, who performed his official duty by obeying instructions from above.

Required:
a) Examine three ethical implications of Mr Kulungugu as the CEO of the 75 % state–owned company at the time that he supervised the bidding process. (10 Marks)
b) Evaluate the position of the Lead Counsel for the Director of Finance that his client only performed his official duty as a subordinate officer by obeying instructions from above and should therefore be acquitted and discharged. Advise the Court accordingly. (10 Marks)

QUESTION 2…..20 Marks
1. “Boards have considerable freedom to delegate board functions to management. This interplay between the board and management raises a crucial aspect of corporate governance – where do boards focus their attention” (Tricker 2015, p. 182).
Critically examine this statement, placing exceeding emphasis on the basic functions of a board. Draw from examples of an organization that you are familiar with to justify your discussion. (20 Marks)