TUESDAY: 5 April 2022. Afternoon paper.                                                                     Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.


HGS Ltd.

HGS Ltd. is one of the supermarkets that has a large market share in retail business in East and Southern African region. Established five years ago in Kenya, HGS has 21 outlets and over 5,000 employees. HGS generates slightly over Sh.20 billion in revenue annually.

The board of HGS is aware that in the recent past, two of the largest supermarkets had exited the market and the another one was struggling due to financial challenges.

Aggressive expansion to increase presence in the region seemed to have been their strategic mistake. These supermarkets seemed too-big-to-fail from their expansive reach and penetration in the market. Their failures affected several businesses in the value chain due to their inability to settle their debts. Business analysts and the media have argued the supermarket which went under had weak governance structures and their boards were making poor strategic business decisions. The board of HGS was also aware that boards and management of these retail companies were not inherently bad or in some way set upon being part of these corporate disasters.

These organisations remain a reminder, if one is needed, that corporate failure could occur if those in charge lose their way. The board. of HGS is interested in understanding why the boards of these retailers failed to ‘detect warning signals during the early stages of failure and if they indeed detected warning signals why they decided to remain. passive. In addition, the board wishes to find out why some supposedly talented and experienced boards often fail to intervene effectively in failing organisations despite their strategic position.

To address these concerns and others in order to enhance corporate governance in the firm, the board has requested you as a governance professional, to examine the dynamics and challenges that may have confronted the boards of directors of these failed firms as failure progressed from one stage to another. From an in-depth study of available data on these firms and from other credible sources you obtain the following information:

Generally, failure starts with the initial or pre-failure stage and is often brought by management inability to spot or underestimate early warning signals that indicate a potential threat to the organisations future survival.

There is consensus in the failure literature that each state of failure raises different organisational challenges. An effective handling of failure requires management to use appropriate intervention strategies targeted at the unique challenges faced at that particular stage of failure.

Weitzel and Jonsson’s five-stage model shows that failure typically stars with blinded management; then inaction; followed by faulty action; then crisis and finally dissolution.

Whilst management behaviours, roles and power vary across life cycle stages, several behavioural factors such as the power of CEO through social networks and relationships have profound implications on board’s decision making processes.

Boards and directors fulfil their fiduciary duty to the shareholders by overseeing and monitoring CEO’s and management’s actions, vetoing poor decisions to protect the interests of shareholders and assisting and advising management in their effort to increase shareholder’s wealth.

From unbroken chain of bad decisions over a period of time, boards of directors are supposed to draw upon their collective wisdom to spot some of the bad decisions and break the chain of errors before they spiral out of control.

The role of the board is to assess the risk of each strategy.

Data from collapsed supermarkets showed the four stages of organisational failure, management action and board dynamics as follows:

  • Conception stage.

Management made a chain of mistakes and there was no deliberate attempt to involve the board when it was decided to expand into areas in which they had little or no experience. Boards of directors exhibited group think mentality, blind faith in management and failed to execute their corporate duties. Key outcomes included destruction of shareholders value.

  • Warning signals stage

Management had started taking high risk decisions and CEOs had started deliberate attempts to hide the warning signals and influenced the boards to approve high risk strategies. Boards of directors were not aware of the magnitude of the crisis, they ignored initial signals and continued to have blind faith in management as the shareholder value continued to decline.

  • Rebellion stage

Management was chasing high risks that had short term impact, showed intolerance of dissent and focused on marginalisation and punishment of dissenting directors.

  • Collapse stage

Management ignored negative feedback and the ultimate result was business failure.


Evaluate six common Board inefficiencies that might cause failure of HGS.                                                                   (12 marks)

Under each of the four stages of organisational failure, discuss board dynamics which could be present in the Boardrooms of the failed supermarkets.                                                                                                                             (8 marks)

For each stage identified in (b) above, summarise key measures the board of HGS Ltd. should use to prevent or reverse organisational failure.                                                                                                            (4 marks)

Explain how regular board evaluation at HGS Ltd. could have contributed to organisational sustainability. (6 marks)

Discuss five ideal ways of planning and conducting effective board meetings at HGS Ltd.                                             (10 marks)

(Total:40 marks)



1.          Explain the term “boardroom dynamics”.                                                                             (1 mark)

Analyse four steps critical in developing an agile board.                                                               (8 marks)

2.         Assess three practical ways in which a Board could improve its dynamics.                 (6 marks)

(Total: 15 marks)



1.           Analyse the five characteriSties of an effective Board.                                           (5 marks)

2.         You are the chair of a Board whose tort is expiring in one year’s time. Your Board is accused of lacking in diversity.


Propose three strategies you could use to ensure diverSity in the new Board.                        (6 marks)

3.        Evaluate two practical ways in which governance professionals could positively influence bOatch-Oom dynamics. (4 marks)

(Total: 15 marks)



1.          Summarise five ,attributes of a non-executive director.                                                  (5 marks)

2.         The most effective organisations invest in their Board and encourage continual learning in the boardroom. With reference to the above statement, discuss five reasons why organisations should invest in Board development   (10 marks)

(Total: 15 marks)



1.          Technology consistently brings us many innovative tools and offers extended functionality including the ability to attend virtual board meetings. With reference to the above statement, analyse five benefits and fi ve challenges of virtual board meetings. (10 marks)

2.          Summarise five best practices for virtual board meetings.                                       (5 marks)

(Total: 15 marks)

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