TUESDAY: 25 April 2023. 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.
QUESTION ONE
LORDEN KRINCES INC
Lorden Krinces Inc. (LKI) was founded in a small town in Kenya 20 years ago by a group of ten engineers. The company specialises in the manufacture of various plastic items including furniture and packaging containers.
The ten founders of the company became the directors of the company and held all the top leadership positions. After three years of operation, they decided to broaden board diversity in readiness for listing at the Securities Exchange. Independent directors needed to be added to the pool of directors. The achievement of board dynamics was greatly informed by psychological theories.
The company was eventually listed at the Securities Exchange in November, 2020. The founders were fully aware that the listing would allow them to fund and help sustain LKI’s growth potential. The company has been growing its portfolio of products steadily and currently, it has over 100 lines of production domiciled in over 20 outlets spread across the country. Market capitalisation of LKI at the end of December 2022 was Sh. 517 million.
In the recent past, the company has been struggling in upholding good governance principles. The company has been facing integrity challenges. It has fallen back in terms of compliance with the various statutory requirements. The company operates in a laissez faire mode where each department is more or less autonomous. Every employee is aware of the fact that there is no documented decision-making tool, a factor that brings about confusion thereby affecting overall productivity. Meetings in the organisation have been very informal. Despite the informal nature of the meetings, many directors are highly skilled and dispense their business effectively. During their last meeting, the directors resolved to schedule capacity building sessions so that they could be trained on good corporate governance and board
programmes.
Required:
1. Advise the management of Lorden Krinces Inc. (LKI) on the tools that they may adopt to facilitate effective decision making in the corporation. (10 marks)
2. Examine FIVE governance theories that could inform LKI’s board structure. (10 marks)
3. Analyse FIVE skills that could enable LKI directors become more effective in handling their tasks. (10 marks)
4. Discuss the essential attributes of the directors that were added to the pool at LKI in order to achieve board diversity. (10 marks)
(Total: 40 marks)
QUESTION TWO
1. One tier board is a model in which the board of directors, function as a collectively appointed corporate body.
Explain THREE merits of this model. (3 marks)
2. Ram Charan, a world-renowned expert in corporate governance, classified the evolution of boards into three stages.
Describe these THREE stages. (6 marks)
3. Power tactics can be defined as measures used to demonstrate potential power, cause perception of power, or the realisation of actual power to influence the other party.
With reference to the above statement, describe THREE power tactics. (6 marks)
(Total: 15 marks)
QUESTION THREE
1. Highlight FOUR guidelines for creating an effective board meeting agenda. (4 marks)
2. Organisational politics are informal, unofficial, and sometimes behind-the-scenes efforts to sell ideas, influence an organisation, increase power, or achieve other targeted objectives.
Explain FIVE strategies to reduce negative organisational politics. (5 marks)
3. Good corporate governance dictates that board diversity with regard to academic qualifications, technical expertise, relevant industry knowledge, experience, nationality, age, race and gender should be emphasised.
Analyse SIX benefits of this diversity. (6 marks)
(Total: 15 marks)
QUESTION FOUR
1. The broad substance of the Cadbury`s Report of 1992 emphasised that an approach based on compliance with a voluntary code coupled with disclosure, will prove more effective than a statutory code.
With reference to the above statement, explain FOUR recommendations in this report which have been adopted by public companies. (4 marks)
2. Examine FIVE ways of ensuring effective board succession. (5 marks)
3. Discuss THREE types of corporate culture. (6 marks)
(Total: 15 marks)
QUESTION FIVE
1. Describe THREE standards of good corporate governance as stipulated by the Capital Markets Authority code or its equivalent. (3 marks)
2. Determine FOUR situations where avoidance would be the most suited method to manage a conflict. (4 marks)
3. Explain FOUR benefits of evidence-based decision making. (8 marks)
(Total: 15 marks)
