ASSESSMENT FEEDBACK

GUIDELINES FOR ANSWERS TO ASSIGNMENT QUESTIONS

Year 2023
Semester First semester
Module CORPORATE GOVERNANCE
Module code CGE 101

1. DETAILS OF LECTURER

Lecturer Mr J C Benade

Consultation times Mondays to Thursdays 18h00-20h00

Telephone 084 602 1655

Email [email protected]

Office 101, The Village Square, c/o Oxford and Queen Streets, Durbanville, Western Cape, 7550

CPD Vorster – Director | S Totaram – Director | D Singh – Director | JJ Human – Director

Company registration number: 2004/031722/07

2. GUIDELINES FOR ANSWERS TO ASSIGNMENT QUESTIONS

Question 1 [15]
1.1. Answer: No specific page in the textbook (5)
The shareholders are the owners of the business, and they appoint the board to
oversee the management of the company. ✓
This means that shareholders (owners) will hold the board accountable should the
company fail to achieve operational targets or become financially unviable or fail to
comply with exiting legislation, codes and standards. ✓
The shareholders also maintain the right to make certain important decisions such as
the appointment of new board members as well as the appointment of the external
auditors. ✓
In turn, the board receives a mandate to run the company and provide strategic
direction to it. ✓
The board will regularly give feedback to the shareholders on their progress, the
performance of the company and any material issues that could affect the future of the
company. ✓

1.2. Answer: Wiese (10)

The mandate of the board is to govern the organisation. This emanates from a number
of sources:
The companies Act stipulate that every company will be under the control of a board
of directors. ✓
The Board is also required to appoint an Audit committee and a Social and Ethics
committee. ✓
The shareholders and their AGM elect members (directors) to the Board who then
takes on the role of overseeing and monitoring the performance of the board on
behalf of the shareholders. ✓
King IV (principle 6) echo this and says that the board should be the custodian of
corporate governance in the organisation. ✓
King further recommends that in its own structuring, and delegation of authority they
should ensure that they can execute their duties efficiently. ✓
The companies MOI probably enforces this view and will indicate how such a board
will be elected and how it is supposed to function. ✓
Once the board has been established, it will adopt a Board charter that will guide
them in terms of their conduct and terms of reference. ✓
Once established, the board does this through giving direction to the management and
controlling the company.
- They (the board) have the responsibility to appoint a CEO and in some instances, the
CFO and members of the executive team. ✓

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 - They also approve the long-term strategies of the company as well as the strategic
objectives that will be pursued. ✓
- They also do the performance contract of the CEO which is based on the achievement
of strategic objectives and operational targets. ✓
- The board has the responsibility of oversight, over the senior management and will
engage on a regular basis with them in order to monitor the performance and progress
of the company. ✓

Question 2 [20]
2.1. Answer: Wiese pp 50 (5)
The difference between executive and non-executive directors
Executive directors are:
• Generally employed by the company/organisation. and they participate in senior
management incentive schemes ✓
• They occupy an executive position in the senior management team such as being the CEO
or the CFO. ✓
• They have inside information on the operations of the business ✓
The non-executive directors on the other hand:
• Are not employed by the company ✓ and are required to act independently,
• Should enjoy a degree of objectivity and detachment ✓
• They bring their own skills and experience into the Board.

2.2. Answer: Wiese pp (5)

Both King IV and the JSE listing requirements require that the Chairman of the board should be
an independent non-executive director. ✓ King further recommends that a former CEO
(executive director) should not be elected as chairman within the first three years after his/her
retirement. ✓ The significance of having an ‘independent chairman; lies in the fact that ensures
an additional ‘level’ of independence and it will ensure that there is a balance of power between
the Chairman of the board and the CEO. ✓
King IV and the JSE further recommend that should the chair not be an independent non-
executive; a lead independent non-executive director should be elected who can address
issues on behalf of the non-executive directors with the chairman✓. Again, this is an attempt to
create a balance of power in the board✓. An example of where the chairman is not
independent and therefore a lead independent director has been elected, is the board of Pick n
Pay.

2.3. Answer: (10)

King IV and JSE listing requirements both makes comment about the composition of the board.

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The composition of the Board is addressed by both King IV and the JSE regulations. In terms of
Principle 7 of King IV the governing body should comprise of an appropriate balance of knowledge,
skills, experience, diversity, and independence for the discharge of its duties, ✓
It goes further in Principle 8 which states that the delegation within its own ranks should prepare it
to function effectively. ✓
- Directors should be appointed based on their skills and experience
- The responsibilities of the Board Chairman should be clarified✓
-The responsibilities of the CEO and Management team should likewise be clarified✓
- Delegation to the committees of the Board should enhance the boards efficiency✓
- The members of the board should be diverse in skills, knowledge, experience and the like. This is
to ensure proper debate and decisions. ✓

JSE rules also regulate on the composition of the Board.

The process used for the appointment of directors must be formal and transparent and on advice
of the nominations committee - ✓
Details should be released of how they have appointed directors, 
The capacity of each director should be declared as executive vs non-executive and whether
they are independent. 
There must a clear policy to ensure a balance of power at board level, 

Question 3 [20]
3.1. Answer: Wiese book pg. 67-76 (7)
The core elements of a director’s ‘fiduciary duty’ include the following:
• The responsibility of loyalty ✓ – which every director, individually owes to the organisation.
This loyalty has many facets, two of which is:
• To act in good faith✓
• To act in the best interest of the organisation✓

To act in good faith includes the following aspects:

• He/she must act bone fide in the best interest of the company✓
• It requires independent and unfettered discretion.in exercising judgement✓
• Not vote in his own interest or that of a specific shareholder
• Never exceed the powers granted to him in terms of the Act or the MOI.

To act in the best interest of the organization implies the following:

• The interest of the company as a whole should be considered – all stakeholders. ✓
• It includes the interest of employees, suppliers, customers, the community and the
environment✓
• They should avoid conflicts of interest – where personal interest is put against company
interest.

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 • They should not get any personal advantage g on the from being on the board or having
access to board information.

As the fiduciary duty is a legal obligation, a failure to uphold the duty will result in a director
becoming liable for his/her negligent actions or the failure to do so.

3.2. Answer: Wiese pp 73-74 (3)

A ‘personal financial interests’ refer to situations where either the director himself, or a close
family member✓ or even a close friend stands to benefit✓ from a particular board decision,
contract or business transaction.
The gain could be direct for example when they will be earning a fee or income or indirect in
that the director own shares in a business entity that will benefit. ✓

3.3. Answer: Wiese pp 73-74 (3)

At beginning of meetings, the chair should call on members to declare their interest. The
director’s declaration should be noted by the chair and the rest of the meeting under the
guidance of the Chairman should decide whether the said director will be allowed to remain in
the meeting. ✓
The director who has declared an interest, should not participate in the discussion✓ on the
matter and if it is a material interest, they should rather be excused from the meeting as their
mere presence could allow them to exercise influence on the outcome of discussions.
The director should not be allowed to vote on the matter. ✓

3.4. Answer: Wiese pp 63-64 and 80-84 (4)

In the event that a director does not comply with their fiduciary duties, Shareholder have the
following remedies:
• Removal is by ordinary resolution. ✓
• The affected director should be given 15 days’ notice of the intention to remove the director
and the proposed resolution. ✓
• The director must be afforded an opportunity to make presentations in person or through a
representative before the matter has been put to a vote. ✓
• Shareholders could also decide not to re-elect the director at the end of their term. ✓
3.5. Answer: (3)
Insider trading refers to the fact that members of the board have knowledge of the performance
or lack of performance of the company before the general public or shareholders are informed.
✓ The also know about major transactions that might impact on the future performance or
prospects of the company. As such, board members are seen as insiders.
If directors use this information in order to make decisions about buying or selling company
shares✓, or even advise their family or friends to do so, this will be viewed as insider trading.

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Insider trading is illegal as those who do it tries to gain un unfair benefit/advantage by using the
information to which they have been privileged. ✓

Question 4 [20]
4.1. Answer: No specific page reference. Marks allocated to a maximum of ten marks. (10)
There are elements of the Boards structure which is prescribed by the Companies Act. ✓ This
include that the board should have an Audit committee and in public companies also a Social
and Ethics committee. ✓The mandates of these committees are usually determined by the Act,
the MOI of the company and the board charter. ✓
Other committees which are quite common in the boards of larger companies include a
Remuneration committee, a nomination committee, and a risk committee. ✓ Companies could
also establish committees that will be unique to their industry or circumstances such as an
investment committee or technology committee. ✓ The MOI of the company would usually
allow the board to introduce committees as and when required.
The committees will report back to the main board on their functioning and make
recommendations for the board to approve or endorse. The reports of these committees will
also be included in the integrated annual report of the company and some of them such as the
remuneration report.
Two of the committee reports – that of the Audit committee✓ and that of the remuneration
committee has to be tabled at the Annual shareholder meeting. ✓
A second important aspect with regards to the structuring of the board relates to the number of
executive vs non-executive directors. ✓ King IV recommend that the number of non-executive
directors should exceed that of the executive directors. ✓ This is aimed at creating a balance of
power in the composition of the board.
The third important aspect relate to the role of the Chairperson. As the board will oversee the
CEO the Chairperson should ideally be a non-executive director. ✓

4.2. Answer: No specific page reference. Marks allocated to a maximum of seven marks. (7)
The whole objective of establishing committees is to allow board members with appropriate
experience and skills to focus on specific issues ✓ and to create additional time for them to do
so. ✓ This is not only a delegation of responsibilities but can and should contribute to
independent judgement by the various board members as they serve in the main board but
also in its various committees. ✓ The independent thinking and view of various board members
is also reflected in their fiduciary duty which specifically means that they should apply their
mind to matters at hand and formulate an independent view. ✓
The audit committee for example is specifically tasked to look after the financial affairs of the
company and to appoint the external auditors. ✓ As such, people with appropriate skills should
be elected to serve in this committee. ✓ It is also important that this committee is appointed by
the shareholders and not by the board itself. Furthermore, the committee has the right to meet
with the external auditors without any of the executive directors being present. ✓ And ultimately

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the report of the audit committee will be tabled at the shareholders meeting for their
consideration. Again, this is an attempt to ensure independence.

4.3. Answer: No specific page reference. Marks allocated to a maximum of three. (3)
The concept of ‘balance of power’ as used by King IV refers to the fact that if a particular
person or group of persons has too much power, they could dominate or even control the
board✓ so as to force their view or will on the board. In some companies for example there was
a practice to appoint the CEO of a company as the chairman of the board. This raised the
danger of such a person to exercise undue influence in the board. ✓ The second concern
revolve around the fact that when the executive directors form the majority in the board, they
could “out-vote” the non-executive directors. ✓ To achieve a better balance of power, both
these issues were addressed by King IV.
To ensure a balance of power three very specific recommendations are made:
The positions of Chairperson and CEO should be separated.
The Chairperson should ideally be a non-executive director.
The non-executive directors be more in number than the executive directors.

Question 5 [15]
5.1. Answer: No specific page reference Marks allocated to a maximum of seven marks.
(7)
The Board can and should structure its relationship with the CEO and the executive team to
ensure that the company achieve operational performance and sustainability.
• The board should establish the strategic objectives that needs to be achieved ✓
• Once that strategic plan is finalised, the Board should approve the required resources for
the plan. ✓
• the Board employs the CEO and therefore has the right to draft his/her job description and
determine his/her key deliverables. ✓
• Ideally the Board should on an annual basis agree with the CEO on the operational
targets✓ as well as the performance criteria✓ that will be used to assess the organisations
performance against the targets.
• The Board should also draft the CEO’s annual performance contract, and on a bi-annual
basis assessed his/her performance as well as that of the organisation as a whole. ✓
• The Board should also determine how regularly (for example quarterly) the CEO will be
required to give feedback to the Board as well as the format in which the feedback should
be provided. ✓
• The Board should further ensure that there is an audit committee in place who will manage
the relationship with the external auditors and who will oversee the financial performance of
the company. ✓

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 • The Board should also ensure that there is a risk management system in place to identify
and address any material risk for the company, ✓

5.2. Answer: (8)

Principle 5 of King IV reads: The governing body should ensure that reports issued by the
organisation enable stakeholders (which include shareholders) to make informed assessments of
the organisation’s performance and it’s short, medium and long-term prospects.
Information that should specifically be shared with the board include the following:
• The director’s report✓

• The audited financial statements✓

• The audit committee report✓

• The remuneration report as prepared by the Remuneration Committee✓

The bulk of their feedback will be captured in the Directors report and the Integrated Annual Report
of the company. ✓ Matters that will be covered will include aspects such as:
• The overall financial performance of the company✓
• The achievement of operational and financial targets✓
• New strategies that have been implemented✓
• How the board has dealt with issues such as risk management, ✓ and
• New opportunities that are being explored.

Question 6 [10]
6.1. Answer: Students are allowed to research their answer from various sources but need
to list at least ten key aspects or responsibilities of the board. These should include the
following: (10)
The responsibility of the board revolves around a number of critical deliverables such as:
• To give guidance on and approve the corporate strategy and then to delegate the
implementation to management. ✓
• To approve all high-level policies as well as corporate action such as mergers and the
selling of business units, the paying of dividends, the annual budgets, etc✓
• To appoint (and manage) the CEO and to do succession planning for all members of the
board as well as the CEO. ✓
• To oversee the performance of the CEO and the executive team. ✓ This would usually be
based on an agreed set of strategic objectives, performance targets and performance
criteria that will be used to assess the performance of the company✓
• Responsible for the organisational culture which include the establishment of an ethical
business culture as well as an appropriate focus on performance, productivity and project
delivery. ✓

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 • To ensure that the company is compliant with all laws and regulations, standards and
codes which are applicable to the company and its industry. ✓
• Ensure that an appropriate system is in place to ensure that all material risks are identified,
and appropriate measures instituted to ensure that they are mitigated and managed. ✓
• To identify the key stakeholders of the company and engage with them so as to ensure that
their needs and expectations are understood and where possible incorporated in the
strategies of the company. ✓
• To specifically keep the shareholders informed of all aspects which are material to the
wellbeing of the company. ✓

TOTAL: 100

3. CONCLUSION

A wise man once said that companies can no longer function as if they are on an island. They
need to be aware of the demands of shareholders, stakeholders, the law and even the
environment. This also holds true for South Africa.
One of the things that South Africa needs for its long-term survival, is companies that functions
properly. This holds true for both the private sector and the public sector. I do hope that your
journey through the world of corporate governance will make you more alert to the potential
problems and will assist you as you grow in your own career.
Good luck with your studies towards the exam. Hard work are usually rewarded with good marks.

Regards
Mr J C Benade.