Case Study: Nexus between Corporate Governance and Strategy

Crystal Plc was incorporated 30 years ago by a brilliant, courageous and innovative
entrepreneur who had a reputation for responding quickly to the changes in the
business environment. As CEO he had come to understand how to effectively work
with his management team to identify customer needs, develop cutting-edge products
and services to meet such needs. This led to a clear competitive advantage for the
company in the marketplace within the first five years of starting business.

Ten years after incorporation, Crystal Plc positioned itself as one of the best in its
industry. The company became a frequent partner of choice for most international
organisations such as the International Finance Corporation (IFC) when programs
were targeting MSMEs. The level of achievement made instituting good corporate
governance practices a must for the company. A board was constituted after a careful
selection of board members to oversee and monitor the management team led by the
CEO.

With the fast pace of growth, the pressure to remain an industry leader, and the high-
risk appetite of the CEO, the company had a lot of problems with persistent breaches
of government rules and this was manifested in the number of penalties paid to the
regulatory authorities for infractions. There is this constant perception in the
organisation that regulatory authorities were too slow in catching up with the
responses needed to meet customer demands.

The board members were not in support of running a business that does not respect
regulatory demands but at the same time did not establish firm guidelines of what was
considered permissible for the company. About 8 years ago, the company employed
a consultant to guide the board and management in developing a strategic plan to get
both parties on the same page. This was expected to guide the board in its oversight
function but the metrics for monitoring the company strategy and execution was not
easy to track.

A lack of respect for compliance with regulatory demands and the CEO's and
management's high-risk appetite was a constant concern for the board. Over time
financial ratios like liquidity, return on investment, debt equity ratio was becoming more
and more unacceptable compare with industry standards. This led to the company
having problems meeting financial obligations to suppliers and other stakeholders. The
board members frowned at the company financial problems but management
convinced them that they were transient issues that would be solved once the new
products that they had developed hit the market.

Over the past years, a lack of attention to internal controls and the high-risk appetite
of the CEO is now a big problem. The board did not manage the situation well probably
due to the fact that the CEO was also the founder of the company and had a lot to
lose.

The company’s performance is currently far below expectation and to avoid

bankruptcy and the reputational damage to the company and board members, the
board is contemplating calling for the retirement of the incumbent CEO so that the
company can employ a more competent CEO.

Questions

1. Identify the corporate governance pitfalls in the company?

2. What do you think of the formulation, implementation and monitoring of the
strategy over the years?
3. What should the board have done differently to salvage the situation?
4. What do you recommend they do immediately to save the situation from total
collapse?