THURSDAY: 16 December 2021. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question.
QUESTION ONE
DIGITAL ENTERPRISES LTD (DEL)
Digital Enterprises Ltd. (DEL) was one of the leading personal computers supplier in Kenya between year 2004 and 2008. The company was incorporated in the year 2004 but has been experiencing boardroom coups since year 2010. It has not been easy for the Chairman to effectively chair DEL Board meetings, since the company started experiencing boardroom wars.
As the Chairman of both the nomination committee and audit committee, Eric Matano in the last Board meeting strongly argued that the composition of the Board should be changed. He felt that the Board should have consisted mainly of non- executive directors since the company’s articles of association did not require executive directors other than the CEO to attend Board meetings. Several members of the Board were of the contrary opinion and this led to a confrontation between two board members, Odek Bakari, an advocate of the high court and Musa Kitivo, a primary school dropout. The Chairman saved the meeting by craftily referring the matter to a subcommittee of the Board which will deliberate and report to the Board during the next Board meeting. According to the Board’s calendar of DEL, the next meeting will be held on Friday, 24 December 2021 just a day before Christmas. This day is ideal since Board members together with their family members will be in Mombasa from Sunday, 19 December 2021 for a bonding retreat. During the retreat, the Board is expected to address issues that have really affected the performance of the organisation. It is expected that the company secretary in consultation with the CEO and the Chairman of the Board will include the following issues in the agenda:
- Possibility of formation of a separate independent board by altering the Board structure from one tier to two tier.
- Addressing the human capital aspects of the Board by ensuring that the Board has the right mix of competencies, skills and experiences.
- Creating a healthy Board culture.
- Reduction of tension between DEL’s Board and management.
The Board of DEL is male dominated and some Board members feel there is need to ensure gender balance. The Board however cannot agree on a criteria to be used to determine the Board members who should give up their positions for appointment of female Board members.
Another critical issue which has divided the Board is the unequitable membership to the various Board Committees. Some members are in many committees whereas others are members of only one committee. Membership to a committee entitles one to draw hefty allowances hence the more committees one is a member of and the more the number of sittings, the more the allowances a member earns.
1. With reference to the above case, discuss how the Chairman of Digital Enterprises Ltd. (DEL) could overcome the following challenges:
Managing status dilemma. (4 marks)
Managing the tension between the Board and management. (4 marks)
Sustain Board cohesion while encouraging a contest of ideas. (4 marks)
2. The current Board of DEL is male dominated.
Assess five reasons why more women should be brought on board. (10 marks)
3. During the planned retreat in Mombasa, the Board of DEL is expected to find ways of creating a healthy Board culture.
With reference to the above statement, analyse five ways in which the Board of DEL could improve its Board culture. (10 marks)
4. DEL is considering transforming its governing structures from a one tier Board to a two tier Board:
With reference to the above statement, discuss four characteristics of a one tier Board. (8 marks)
(Total: 40 marks)
QUESTION TWO
1. Examine five strategies that could contribute to effective Board evaluation. (5 marks)
2. Outline seven issues to be covered during a Board induction session. (7 marks)
3. By looking at the long-term interests of the organisation, directors could foster an environment that creates sustainable value for all stakeholders.
With reference to the above statement, explain how you would tell whether a Board is focused on the long-term strategies. (3 marks)
(Total: 15 marks)
QUESTION THREE
1. In the context of Board discussion and decision making, examine seven indicators of best practice boardroom behaviour. (7 marks)
2. Examine four best practices for virtual Board meetings. (8 marks)
(Total: 15 marks)
QUESTION FOUR
1. Discuss the following building blocks of a progressive Board.
Group dynamics (5 marks)
Information architecture. (3 marks)
Focus on substantive issues. (2 marks)
2. In many cases, the solution to a conflict would be difficult without acknowledgement of the feelings at play.
With reference to the above statement, outline five tips one could use to positively influence the emotional climate during a conflict in the Boardroom. (5 marks)
(Total: 15 marks)
QUESTION FIVE
1. Corporate governance in King IV report on corporate governance is defined as the exercise of ethical and effective leadership by the governing body towards the achievement of certain governance outcomes.
With reference to the above statement:
(i) Distinguish between “ethical leadership” and “effective leadership“. (4 marks)
(ii) By giving two examples, explain the term “governance outcomes”. (3 marks)
(b) In some Boards, some directors might have too much power or the CEO might hold too much power over the Board hence views of such members being priorised over views from the other members even when the views are inferior in terms of quality.
With reference to the above statement, examine four signs of a Board with authority bias problem. (8 marks)
(Total: 15 marks)
