TAN TAO UNIVERSITY SOCIALIST REPUBLIC OF VIETNAM

SCHOOL OF ECONOMICS & Independence – Freedom – Happiness

BUSINESS ADMINISTRATION
Semester: Spring 2020 Academic Year: 2020-2021
Midterm Examination
IBS 306 (Corporate Governance)

Name: Nguyen Van Chieu.

ID: 1701007

Section A: Essay

Question 1.

Mrs. Zainazra Putri established Woodlands Learning Centre in 1990 with the objective of

providing quality education for a lesser cost to students in her hometown in Surabaya, Indonesia.

Her mission is to help students who are financially challenged who can’t afford to study in more

expensive schools. She envisioned her school to reach out to more places in her country

providing quality education at more affordable tuition fees. After decades of operation, her

learning centre grew and expanded more branches in Indonesia. She hired a new CEO to run the

operation and the new CEO suggested that the centre must increase the tuition fees as there is

high demand for students to enrol in the learning centre. Mrs. Putri told her new CEO she can’t

make tuition fees expensive as it contradicts the vision and mission of the learning centre.

Discuss the role of vision and mission in business. How do vision and mission affect

corporate governance?

(25 marks)

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 The role of a mission statement in business

“A mission statement is a statement of the organization’s purpose—what it wants to

accomplish in the larger environment. A clear mission statement acts as an “invisible hand” that

guides people in the organization” (Kotler, and Armstrong). The organization's mission

statement defines the company's business, its objectives, and its strategy on how to achieve those

objectives. It concentrates more on where the company is at the moment and the strategic steps it

wants to use to achieve its goals. A company's mission statement can be used to orient an

organization's culture. When setting up a mission statement for your company, outline what your

business does, who you serve, and how you serve them, which are the three most important

elements of a business mission statement. Google's mission statement is “to organize the world's

information and make it universally accessible and useful.” In this case, the mission statement of

Woodlands Learning Centre is “to help students who are financially challenged who can’t afford

to study in more expensive schools”

The role of vision statement in business.

While the mission statement focuses on the company's business at present, a vision

statement directs toward the future of the company. Vision statements provide the direction in

where the company wants to go and stand in the future. When making a vision statement in

business, business owners need to answer the question "Where do we aim to be?". It inspires

business owners and stakeholders to try their best. It shapes their understanding of why they are

working there. Google's corporate vision is “to provide access to the world's information in one

click.” It provides a clear instruction for all employees. In this case, the vision statement is “to

reach out to more places in her country providing quality education at more affordable tuition

fees”.

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 The effects of vision and mission statement on corporate governance.

Both mission and vision statements of an organization help shape its strategy by

providing goals and objectives at the present and the future. From that, business owners can

develop a step-by-step strategy to help the company achieve its mission in the short term and its

vision in the long run. For employees, mission and vision statements help them understand

clearly the expected performance, then promote efficiency and productivity to achieve the goals.

For external stakeholders, mission and vision statements can be used as a public relations tool to

attract public attention and build business partnerships with other companies.

If the business deviates from its vision and mission statement, it can lead to a complete

failure of the business. In the above case, the new CEO cannot raise the tuition fee due to the

increase in the number of students coming to the learning center, which is caused by the

attraction of the mission and vision statement " providing quality education with a lower cost".

Question 2.

Mr. Lawrence Lai was hired as an external auditor of ABC Corporation to conduct financial

audit in the corporation. ABC Corporation is a new corporation which just started operating a

year ago. When Mr. Lawrence Lai visited the corporate office during initial audit and

observation, he noticed that there are critical functions that are performed by a single person. For

example, the head of Finance who authorizes and releases funding is the same person who is

recording the transaction in the accounting books. He informed the CEO that this practice is

discouraged because it might be an opportunity to commit fraud. The CEO responded that since

the corporation is very new, they can’t afford for now hire more people to fill in different

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positions. Give your opinion on the situation. Focus your answer on the effect of Internal

Control on Corporate Governance.

(25 marks)

In this case, Mr. Lawrence Lai observes that there are critical functions that are

performed by a single person, that might be an opportunity to commit fraud. However, the

corporation is very new, they cannot afford for now hire more people to fill in different positions.

In my opinion, Mr. Lawrence Lai's observation is so true, however, all power in hands' a person

does not always lead to committing fraud. There are many ways to control that threat. One of

them is internal record. “An internal control is a procedure or policy put in place by management

to safeguard assets, promote accountability, increase efficiency, and stop fraudulent behavior. In

other words, an internal control is a process put in place to prevent employees from stealing

assets or committing fraud.” ("What Are Internal Controls? - Definition | Meaning | Example").

Internal control activities include monitoring by board, internal audits, the proper balance

of power, performance-based remuneration and monitoring by large shareholders and other

stakeholders. Internal control plays an important role in the prevention and detection of fraud.

Internal control is required by most companies to control a fraud risk. The most important role of

internal control is to find out, limit and eliminate the risks of theft, loss, and fraud in the

organization.

Question 3:

Mr. Arthur Gokongwei founded AG Beverage Corporation in 1959 as small business

manufacturing beverages in the Philippines. He started from scratch and worked hard to achieve

success in business. After decades of operation, AG Beverage became one of the leading family

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owned corporations in the country. It is a closed type of Family Corporation where the shares

are owned by immediate members of the family and some relatives. Mr, Arthur Gokongwei

employed some of the top professionals in the beverage industry including the CEO, Mr. Ronald

Santos who has more than 30 years in the beverage industry. Mr. Santos is supported by a team

of Vice Presidents who are also well experienced in the industry. Mr. Ronald Santos and his

management team are paid executives hired by Mr. Arthur Gokongwei. In January 2020, Mr.

Arthur Gokongwei died and was replaced by his eldest son ,John Gokongwei as chairman of the

board of the family corporation. The first thing he did as the new chairman of the board was

replaced top executives including the CEO Mr. Ronald Santos and his team and hired some

relatives to assume the position. Speculate what will be the potential effect of this decision to

the corporation. Focus on the effect in the business and corporate governance with new

people in the top management.

(50 marks)

To deal with this case, the situation will be examined under the opportunity and threat

analysis.

Opportunity Analysis.

In terms of governance effectiveness, if changing the top management brings better

leadership capacity, it is the answer. Although Mr. Ronald Santos has 30 years of experience in

the beverage industry and has teamed up with well-experienced Vice Presidents. These

experiences may be outdated, and are what prevent the top management from making innovative

and innovative decisions. For the transition of customers from generation X to generation Y and

Z, the customer's taste may have changed dramatically. This requires a constantly changing

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customer approach and product positioning of the company. Traditional marketing and sales

activities may no longer be appropriate. The new chairman, John Gokongwei, probably

understands this. The firing of old senior managers, and hiring new ones can bring positive

effects for Mr. John Gokongwei in changing the company strategy to suit the changing market.

Threat Analysis

Along with the opportunity to lead to success is the risk of failure. The dismissal of old

top management can lead to instability in business management activities. Because old

employees know the corporate culture, how the company operates daily and what makes it gain

reputation. Mr. John Gokongwei is a new chairman who will have a hard time running a

company without someone who knows how daily activities operate. In addition, if the top

management has made a great contribution to the company and built a solid relationship with the

middle management, the dismissal will lead to the loss of trust of many employees about whether

the company values employee contributions or not.

In summary, the effect in the business and corporate governance with new people in the

top management can be directed in either positive or negative way. That's why no one can make

an accurate statement about what will happen about a top management change. The outcome of

this change depends on many other factors that are not mentioned in this case.

END OF EXAMINATION

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 Reference

Kotler, Phil T, and Gary Armstrong. Principles Of Marketing. 16th ed., Pearson

Education Limited, 2016, p. 65.

"What Are Internal Controls? - Definition | Meaning | Example". My Accounting Course,

https://www.myaccountingcourse.com/accounting-dictionary/internal-controls.