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TimeReadingTimeReading nning:153ThispaperisdividedintotwoSectionA–ThisonequestioniscompulsoryandMUSTbeSectionB–TWOquestionsONLYtobeDoNOTopenthispaperuntilinstructedbytheDuringreading nningtimeonlythequestionmaybeannotated.YoumustNOTwriteinyouranswerbookletuntilinstructedbythesupervisor.TheAssociationofCharteredCertifiedernance,RiskandMockExam-MayPreparedbyKaijinProfessionalLevel–EssentialsSectionA–ThisONEquestioniscompulsoryandMUSTbeQuestionSeaSsisasmall operatingfromanislandnearcontinentalEurope.SeaSsisa with25shareholders;itssharesarenottradedonanystockexchange.ThemainshareholdersofSeaSsincluderelativesofthe 'sfirstCEO,andalsoprivateinvestorsfromwhomthefirstCEOsoughtfinanceandwhohavesinceretainedtheirshares.25%ofthesharecapitalisheldbymembersofthecurrentboard.AlthoughSeaSsisaprivate ,itsboardisconstitutedinaccordancewithgoodcorporateernancepractice.Halfofthedirectorsareexecutivedirectorsandhalfofthedirectorsarenon-executivedirectorswhoareindependentinaccordancewiththeguidanceintheUKCorporateernanceCode.Theboardalsooperatesnomination,remunerationandauditcommittees.Themembersofallthesecommitteesareallnon-executivedirectors.ThemainbusinessofSeaSsispackagingoffreshseafood(fish,oysters,crabetc)andsellingthesetosupermarketsandotherretailers.The employs750people,mainlyinthepackingdepartments.Packingislabourintensiveduetotheneedtoclearandpreparefishetc.byhandpriortopacking.sofseafoodareobtainedfromtheisland'sfishingfleet.Previouslythefleetdanumberofcompaniesontheisland.Howeverrecentlyacoupleofthefleet’sothermajorcustomershavecloseddown,andtheresultisthatSeaSsisnowtheonlysignificantcustomerofthefleet.SeaSsisalsooneoftheisland'smajoremployers.ThereissomeconcernthatSeaSs'increaseddemandforseafoodiscausingover-exploitationofsomefishspecies,andthatthepopulationofthesefishmay'crash'ordecreasedramaticallyinthenearInthelastfewweeks,thedirectorsofSeaSshavedecidedtotransferalmostallofthepackagingofseafoodtoanothercountry.Theseafoodwillbemovedbyrefrigeratedshipstothisothercountry,packagedbyworkersthereandthenmovedbackbyshiptoSeaSsforresaleasbefore.Therationalebehindthismoveisthatlabourcostsareonly1/10thofthecostsontheisland.Eventakingintoaccounttransportationcosts,thismovewillhalvethepackagingcostsofSeaSs.Asaresultofthemove,theworkwilldecreaseto200people.ThedecisionhasresultedinsignificantadversepublicityforSeaSsontheisland.Thetradeunionrepresentingtheemployeeshasthreatenedstrikeaction,sayingthatthisisatypicalexampleofexploitativeemploymentpractices.Howeverthereactionfromcustomershasbeenpositiveasthecanofferreducedpricesonmanyproducts.AernmentministerontheislandonwhichSeaSsisbasedhasrecently eddevelopmentsthatlimitthepriceoffoodtoconsumers.Howevertheernmenthasrecentlycomeunderattackfromtheoppositionforallowingjobstobeexportedfromtheisland.Boththeseissuesareexpectedtobenissueswhenanelectionisheldontheislandnextyear.ThedirectorsofSeaSsbelievethatthedecisiontotransferthepackagingofseafoodiscorrectbecause,astheCEOexined,thedecisionis'bestforthe ,bestfortheshareholdersandbestforthedirectors'.TheCEOhasdismissedtheobjectionstothetransferofemploymentas'predictablewhingingandpoliticiangrandstanding.'Hehasnotedthatthemovehasbeenverypopularinthecountrytowhichemploymentwillbetransferred.Howeveracoupleofthenon-executivedirectorshaveraiseddoubtsaboutthemove.OnehasraisedtheobjectionthatSeaSsdependsonsalesonitsisland.Howeveritisremovingpurchasingpowerfromtheislandbytransferringemploymentoverseas.Theothernon-executivedirectorhaswonderedabouttheimpactofmovingthepackagingoperationsonSeaSs'environmentalfootprintandwhetheritcanberegardedassustainable.HehasalsowonderedabouttheimpactofthemoveonSeaSs'financialaccounts.Iftheimpactonthefiguresintheaccountsislimited,hehasraisedtheissuewhether,ongroundsofcorporatesocialresponsibility,theaccountsshouldincludemoreinformationabouttheimpactontheenvironment,orwhetherthisinformationshouldbeincludedinaseparatereport.TheCEO'scommentconcerningdirectorsiscertainlytrueintermsofdirectors'remuneration.75%ofthetotalremunerationpackageofthedirectorsisbasedonperformancerelatedpay,themainelementofthisbeingthenetprofitofSeaS s.Thechairmanoftheremunerationcommitteebelievesthatitisimportantthatdirectors'bonusescanclearlyberelatedtotangiblemeasures.'Ourshareholderswantprofit,soifthe makesprofits,it'sonlyfairthatthedirectorsshouldbenefit.'Theremaining25%ofremunerationrelatestosalaryandisbasedonathreeyearcontractwithSeaS s.Other(non-salary)remunerationincludes contributionstoapensionschemeandashareoptionscheme,withoptionsbeingexercisableinfiveyearsbasedonthesharepriceoneyearago.TheCEObelievesthatitisimportantthattheboardofSeaSscontinuestobestaffedbyhigh-calibreexecutivedirectors.Hebelievesthatthepackageofferedtoexecutivedirectorsmustbemorethancompetitive,sinceSeaSsisaprivate .Hefeelsthatthereisariskthatdirectorswhoareseekingtodeveloptheircareersmayseektodosoincompanieslistedonaninternationalstockexchange,becauseofaperceptionthattheopportunities,andthereforetherewards,atthesecompaniesaregreater.TheCEO'sargumentshavepersuadedtheremunerationcommitteeandanumberoffeaturesofdirectors'remunerationpackagesaredesignedtobindthemtoSeaSsinthelongerterm.TherehaverecentlybeentwochangestotheboardofSeaSs.TheFinanceDirectorhasretired,andhasbeenrecedbyhisdeputy,whowaspreviouslyFinancialController.SeaSshasalsorecruitedanewMarketingDirector.ThedirectorwaspreviouslyasenioremployeeatalargemarketingconsultancyontheEuropean.ExinMendelow'stheoryofstakeholderpower.Identifythestakeholdersinvolvedinthedecisiontotransferpackagingofseafoodtoanothercountry,andassesstheresponseofeachgrouptothis (14UsingGray,OwensandAdams'viewpointsonsocialresponsibilityasaframeworkforyouranswer,evaluatethedecisiontotransferpackagingseafoodtoanothercountry. (14marks)PrepareamemofortheboardDefinestheconceptof'sustainability'andassessestheextenttowhichSeaSs'activitiescanbeconsideredsustainable (7marks)EvaluatesmethodsofreportingthatcanbeusedbySeaS stoexintheenvironmentalimpactofitsactivities. (7marks)(part(c)alsoincludes4professionalExincorporate ernancebestpracticeintermsofdirectors'remunerationandassessthe makingmendationsyouconsiderappropriate. (4marks)(Total=50SectionB–TWOquestionsONLYtobeattemptedQuestion2MaryHobbesjoinedtheboardofRoshand,alargeretailer,asfinancedirectorearlierthisyear.Whilstshewasgladtohavefinallybeengiventhechanceto efinancedirectorafterseveralyearsasafinancialaccountant,shealsoquicklyrealisedthatthenewappointmentwouldofferheralotofchallenges.Inthefirstboardmeeting,sherealisedthatnotonlywasshetheonlywomanbutshewasalsotheyoungestbymanyyears.Roshwasestablishedalmost100yearsago.MembersoftheRoshfamilyhaveoccupiedseniorboardpositionssincetheoutsetandevenafterthe 'sflotation20yearsagoamemberoftheRoshfamilyhaseitherbeenexecutivechairmanorchiefexecutive.Thecurrentlongstandingchairman,TimothyRosh,hasalreadypreparedhisslightlyyoungerbrother,Geoffrey(alsoalongstandingmemberoftheboard)tosucceedhimintwoyears'timewhenhenstoretire.TheRoshfamily,whostillown40%oftheshares,considerittheirrighttooccupythemostseniorpositionsinthe sohaveneverbeenveryactiveinexternalrecruitment.TheyonlyappointedMarybecausetheyfelttheyneededaqualifiedaccountantontheboardtodealwithchangesininternationalfinancialreportingstandards.Severalformerexecutivemembershavebeenrecruitedasnon-executivesimmediayaftertheyretiredfromfulltimeservice.Arecentdeath,however,hasreducedthenumberofnon-executivedirectorstotwo.Thesesitalongsideanexecutiveboardofseventhat,apartfromMary,haveallbeenintheirpostsforovertenyears.Marynotedthatboardmeetingsveryrarelycontainanysignificantdiscussionofstrategyandneverinvolveanydebateordisagreement.Whensheaskedwhythiswas,shewastoldthatthedirectorshadallknowneachotherforsolongthattheyknewhoweachotherthought.Alloftheotherdirectorscamefromsimilarbackgrounds,shewastold,andhadworkedforthe solongthattheyallknewwhatwas'best'forthe inanygivensituation.MaryobservedthatnotesonstrategywerenotpresentedatboardmeetingsandsheaskedTimothyRoshwhethertheexistingboardwasfullyequippedtoformulatestrategyinthechangingworldofretailing.Shedidnotreceiveareply.Exin'agency'inthecontextofcorporateernanceandcriticisethe arrangementsofRoshand. (12marks)ExintherolesofanominationcommitteeandassessthepotentialusefulnessofanominationscommitteetotheboardofRoshand (8Define'retirementbyrotation'andexinitsimportanceinthecontextofRoshand(5marks)(Total=25Atarecentconferenceoncorporatesocialresponsibility,onespeaker(ProfessorCheung)arguedthatprofessionalcodesofethicsforaccountantswerenotasusefulassomehaveclaimedbecause:'theyassumeprofessionalaccountantstoberules-driven,wheninfactmostprofessionalsaremoredrivenbyprinciplesthatguideandunderpinallaspectsofprofessionalbehaviour,includingprofessionalethics.'Whenquizzedfromtheaudienceabouthisviewsontheusefulnessofprofessionalcodesofethics,ProfessorCheungsuggestedthatthecostsofwriting,implementing,disseminatingandmonitoringethicalcodesoutweighedtheirusefulness.HesaidthataslongasprofessionalaccountantsallyobservethehighestvaluesofprobityandintegritythenthereisnoneedfordetailedcodesofCriticallyevaluateProfessorCheung'sviewsoncodesofprofessionalethics.Useexamplesofethicalcodes,whereappropriate,toillustrateyour (12WithreferencetoProfessorCheung'scomments,exinwhatismeantby'integrity'andassessitsimportanceasanunderlyingprinciplein (7Exinandcontrastadeontologicalwithaconsequentialistbasedapproachtobusiness(6marks)(Total=25Duringtheglobaleconomicrecessionthatbeganinmid2008,manycompaniesfounditdifficulttogainenoughcreditintheformofshort-termloansfromtheirbanksandotherlenders.Insomecases,thiscausedworkingcapitalproblemsasshort-termcashflowdeficitscouldnotbefunded.Ultra-UberLimited(UU),alargemanufacturerbasedinaneconomicallydepressedregion,hadtraditionallyoperatedavoluntaryrpaymentinwhichitwasannouncedthatalltradepayableswouldbepaidatorbefore20daysandtherewouldbenolatepayment.Thiswasoperateddespitethenormalpaymenttermsbeing30days.The gavethereasonforthisas'adesiretopubliclydemonstrateoursocialresponsibilityandsupportourvaluedrs,mostofwhom,likeUU,alsoprovideemploymentinthisregion'.Inthe20yearsthehadbeenince,theUUwebsiteproudlyboastedthatithadneverbeenbroken.BrianMills,thechiefexecutiveoftenmentionedthisasthebasisofthe’ssocialresponsibility.'Ratherthantryingtodelayourpaymentstors,'heoftensaid,'wesupportthemandtheircashflow.It'stherightthingtodo.'Mostoftheotherdirectors,however,especiallythefinancedirector,thinkthatthevoluntaryrpaymentisamistake.SomesaythatitisameansofBrianMillsexercisinghisownethicalbeliefsinawaythatisnotsupportedbyothersatUULimited.WhenUUitselfcameunderseverecashflowpressureinthesummerof2009asaresultofitsbank’sfailuretoextendcredit,thefinancedirectortoldBrianMillsthatUU'sliquidityproblemswouldbegreatlyrelievediftheytookanaverageof30ratherthanthe20daystopayrs.Inaddition,themanufacturingdirectorsaidthathecouldofferanotherreasonwhytheshort-termliquidityatUUwasaproblem.Hesaidthatthecreditcontroldepartmentwaspoor,takingapproximay50daystoreceivepaymentfromeach