CORPORATE GOVERNANCE AND ETHICS AUGUST 2023 PAST PAPER

TUESDAY: 22 August 2023. Morning 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.

KAZI NZURI LIMITED (KNL)

Kazi Nzuri Limited (KNL) is a well-established Kenyan company operating in the telecommunications sector. The company was established in the year 1998 and its headquarters are based in Nairobi. KNL has four branches which are spread out across East Africa. The company has been listed on the securities exchange since year 2010. With a market presence spanning over two decades, the company has experienced substantial growth and has emerged as a key player in the industry. As a publicly listed company on the Nairobi Securities Exchange, KNL is subject to the regulatory requirements and guidelines set by the Capital Markets Authority (CMA) and the Code of Corporate Governance for
Issuers of Securities to the Public. The company places a strong emphasis on board composition and independence to ensure effective corporate governance. The board consists of nine members, comprising a mix of executive and non- executive directors. The CEO and the Corporate Secretary also sit on the board. The non-executive directors bring diverse industry expertise and independence to the board. Additionally, the board includes a significant number of female directors, promoting gender diversity and inclusivity.

To strengthen corporate governance, Kazi Nzuri Ltd. has established several board committees responsible for specific areas of oversight. These committees include the Audit Committee, Compensation Committee, Nomination Committee, and Corporate Social Responsibility (CSR) Committee. Each committee is composed of independent directors with relevant expertise and plays a crucial role in ensuring accountability, risk management, and ethical decision-making within
the company. KNL recognises the importance of transparency and timely disclosure of information to shareholders and the public. The company maintains a comprehensive investor relations program, ensuring regular communication and updates on financial performance, strategic initiatives, and corporate governance practices. Furthermore, KNL publishes an annual sustainability report, highlighting its commitment to good corporate governance, ethical conduct, environmental
sustainability and social responsibility.

Ethics form a cornerstone of Kazi Nzuri Ltd’s operations with a strong commitment to ethical behaviour embedded in its corporate culture. The company has a well-defined code of conduct and ethics that outlines expectations for employees and stakeholders. The code emphasises on integrity, honesty, and fairness. Regular training programs are conducted to raise awareness of ethical practices and ensure compliance throughout the organisation. To encourage the reporting of unethical practices, KNL has implemented a robust whistleblower mechanism. Employees and stakeholders are provided with a secure and confidential channel to report any concerns, violations, or breaches of the company’s ethical standards.

The company guarantees protection against retaliation for individuals who come forward with genuine concerns. Kazi Nzuri Ltd recognises its responsibility towards society and actively engages in CSR initiatives. The company invests in sustainable development projects, focusing on education, healthcare, and environmental conservation. Through partnerships with local communities and NGOs, the company contributes to the well-being of society, aligning its business practices with ethical and socially responsible objectives.

KNL’s commitment to corporate governance and ethics is evident through its strong governance structure, independent board, transparent disclosure practices, and emphasis on ethical behaviour. By prioritising transparency, accountability, and responsible decision-making, the company sets a positive example for other East Africa-based companies. Through its continuous efforts to promote good governance and ethical conduct, KNL not only protects the interests of its stakeholders but also contributes to the sustainable growth and development of the East Africa business landscape.

Required:

1. Kazi Nzuri Limited (KNL) conducts regular training programs to ensure compliance with regulatory requirements and industry standards.

Discuss FIVE additional measures the company could adopt to ensure compliance. (10 marks)

2. KNL has implemented a robust whistle blowing mechanism.
Examine FIVE mechanisms that Kazi Nzuri Ltd. could have put in place to encourage whistleblowing and the reporting of unethical practices by its employees and other stakeholders. (10 marks)

3. Appraise FIVE ways in which the company could monitor and assess risks against its defined risk appetite. (10 marks)

4. Assess FIVE corporate social responsibility (CSR) initiatives that could be undertaken by Kazi Nzuri Ltd. (10 marks)

(Total: 40 marks)

 

QUESTION TWO

1. Stakeholder theory of corporate governance and ethics defines how managers should understand and treat the stakeholders so that stakeholders’ interests come above all other interests.

With reference to the above statement, highlight FIVE principles of this theory. (5 marks)

2. The technical incompetence of Non-executive Directors has been identified as one of the key drivers for failure of organisations.

Assess FIVE characteristics a company would consider when recruiting such directors. (5 marks)

3. Risk management is a key component of corporate governance as it helps to identify the possible future, and plan for negative possible effects either by transferring or mitigating them.
From the above statement, highlight FIVE risk management areas that business managers should focus on. (5 marks)

(Total: 15 marks)

 

QUESTION THREE

1. Explain FIVE statutory duties of a company’s board of directors. (5 marks)

2. According to good governance principles, a conflict of interest register needs to be maintained for all directors.

Evaluate FIVE ways on how a director should handle potential conflicts. (5 marks)

3. Analyse FIVE reasons why compliance is important to a company. (5 marks)

(Total: 15 marks)

 

QUESTION FOUR

1. There are several audits that a company engages in to have an independent assessment of its status.

Evaluate FIVE objectives of legal and compliance audit (5 marks)

2. As a corporate governance and ethics consultant, give your advice on FIVE key issues to be covered during the training workshop of new board of directors. (5 marks)

3. List FIVE corporate governance codes in Kenya, which apply to specific sectors. (5 marks)

(Total: 15 marks)

 

QUESTION FIVE

1. Every year, a Board needs to have an evaluation of its effectiveness carried out on the Chairman, individual Directors, and the Board as a whole.

Discuss FIVE reasons why board assessments often reveal that boards have failed to achieve their strategic objectives. (5 marks)

2. The Organisation for Economic Co-operation and Development (OECD) has immensely contributed in the developing, recording and instilling good corporate governance in business and public operations.

Explain FIVE pillars of corporate governance recommended by OECD. (10 marks)

(Total: 15 marks)

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