Tutorial One (Question1 – PAS Chemical)

PAS is a chemical manufacturing company which processes ingredients for a number of large
food and pharmaceutical companies. The processes create non-harmful gases which do not
smell and which are released into the atmosphere. PAS has always worked closely with the
local government to ensure that it fully complies with all health and safety regulations, especially
with regard to its emissions.

The company was founded over 80 years ago. At that time, the surrounding area where the
factory is located was agricultural land. However, over the years, the surrounding area has
gradually become urbanised and there is now a large residential area surrounding PAS’s
factory. Many of PAS’s employees live within this residential area as there are a number of
facilities located close by such as schools, shops and recreational facilities. There is little other
industry in the area.

PAS is a large contributor to the local economy in terms of employment and in the past has
contributed to local community events and sponsored local sporting teams.

PAS has been a successful and profitable business but in the last 10 years it has suffered a
steady decline in its profit margins. The Board of Directors of PAS is considering the future
direction of the company.

The company has recently invested in research and development activities to develop new
processes in order to try to reduce its operating costs. The chemical engineers at PAS have
recently developed and obtained the intellectual property rights (IPR) for a new process which
could produce chemicals which could then be used in the cosmetics industry.
The cosmetics industry is very profitable and this new process would be an opportunity for PAS
to gain a significant competitive advantage and generate new revenue streams. This new
process can produce chemicals for use in cosmetic products far more efficiently and cost
effectively than any of the existing processes used by other companies. However, although the
process of producing these chemicals for the cosmetics market complies with all health and
safety legislation, it would result in the emission of large quantities of non-harmful gases into the
atmosphere, and these emissions would smell.

The majority of the current Board of Directors of PAS are members of the founding family and
they have always taken an active part in the management of the business. Members of the
founding family of PAS own 35% of the shares. The remaining shareholders are made up of
institutional investors (30%), employees of PAS (25%) and the general public (10%).

Required
(a) In the context of the proposed process to produce chemicals for the cosmetics industry:

(i) Advise the Board of Directors of PAS of the benefits it will gain from an analysis of its stakeholders.
(5 marks)

(ii) Analyse the main stakeholders of PAS using Mendelow's power/interest matrix.
(12 marks)
(b) Recommend, with reasons, the actions that the Board of Directors of PAS could take to manage its
stakeholders with respect to the smell emitted by the new process.
(8 marks)
(Total for Question Two = 25 marks)
(March 2013, Q2)
Tutorial One (Question 2: WRL Gold Mining )

WRL is a multi-national gold mining company. Its mission statement explains that ‘WRL exists
to make the maximum possible profit for its shareholders whilst causing the least damage to
the environment. WRL will, at all times, be a good corporate citizen’.

In 2007 WRL was granted a licence to mine for gold by the national government of Stravia, a
small country whose economy is mainly based on agriculture. The national government of
Stravia was very keen to develop its economy and saw gold mining as an important aspect of
this. The area where WRL was granted the licence is very remote and has no towns or cities
nearby. There are small villages near the site of the gold mine. One of the conditions of the
licence is that WRL would employ local people wherever possible, which it has done. WRL is
entitled under the terms of the licence to dispose of the waste from the gold mining wherever
is convenient for it.

The terms of the licence granted a payment by WRL to the national government of Stravia,
payable in US dollars, which in 2009 totalled $50 million. This is a significant amount of
foreign exchange for Stravia’s economy. Similar levels of payment by WRL to the national
government are likely to continue annually for the foreseeable future. The mine has operated
profitably since it began.

WRL’s mine is in an area controlled by the Eastern state government. The Eastern state
government was not involved in the negotiations to bring WRL to Stravia and is not entitled to
any payment from WRL. However, Stravia’s national government granted the Eastern state
government $1 million in 2009 from the payments which it received from WRL.

The Eastern state government discovered that WRL’s proposed mining techniques use a
great deal of water which becomes polluted. The cheapest way for WRL to dispose of this
polluted water is to dispose of it in a lake near the mine and it intends to do this.

The Eastern state government feared that if the polluted water was disposed of in the lake
this would kill all the aquatic life in the lake and have a long-lasting adverse effect on the lake
and the surrounding area. Therefore, the Eastern state government took legal action against
WRL in the Eastern state courts to prevent the disposal of the polluted water in the lake.

During the court action, WRL argued that if it was not allowed to dispose of the polluted water
in the lake its mining operations in Stravia would become uneconomic and the mine would
have to close. A small number of WRL’s shareholders argued that it was better to close the
mine than to pollute the lake.

The state courts granted the Eastern state government’s request to prevent WRL disposing of
the polluted water in the lake. However, upon appeal to the National Supreme Court, WRL
has been granted permission to pump the polluted water into the lake as its licence imposes
no restrictions.

Required
(a)
(i) Categorise, according to Mendelow’s matrix, any three of the stakeholder groups of WRL with respect
to the decision about the disposal of the polluted water. You should explain what the power and
interests of the three stakeholder groups you have categorised are likely to be.

Note: You are not required to draw the Mendelow matrix

(9 marks)

(ii) Advise the Board of WRL of the actions it should take to resolve the problem of its stakeholders’
competing objectives.
(7 marks)

(b) Discuss the extent to which WRL’s mission statement is consistent with its plan to put the polluted
water in the lake.
(9 marks)

(Total for Question Three = 25 marks)

(September 2010, Q3)