Professional Documents
Culture Documents
Suggested Answers
Nov-Dec 2021
Capital Investment
In this case, the main barrier to entry is the capital investment required to enter to banking market. In total
RSBC has invested USD 100 million to inter Bangladesh market to establish its branch network.
Recent withdrawal
The fact that one foreign bank has recently withdrawn from Bangladesh may also discourage potential new
entrants from being investing in Bangladesh. The banks’ claims that their operation in Bangladesh served
to reduce group profitability suggest that Bangladesh may not be a very profitable market to invest in.
Competitive rivalry
Strong competition
The State-owned banking institutions provide tough competition for retain banking business in Bangladesh.
The state-owned commercial banks compete strongly for retail banking business against private sector
rivals and have half of the retail business of Bangladesh. State-owned banks have further strengthened their
position in retail banking and have launched number of new retail banking products, which have proved to
be immensely popular with customers and are very profitable.
Although the well-established foreign banks are all profitable, it appears the more recent entrants has been
less successful. One the banks have recently been withdrawn from Bangladesh. Although there appear to
be high margin in the banking industry in Bangladesh, it appears that banks need to have reached a certain
size (a critical mass) before they can began to earn those margins.
Market growth
Nonetheless, the banking analyst’s report indicates there is plenty of growth left in the banking market in
Bangladesh, and the margins are excellent. This suggests the competitive rivalry may not be as intense as
it might otherwise be, but the dominant position of the established banks still suggest there is a high level
of rivalry in the banking market in Bangladesh.
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have to offer the customers significantly better deals than existing domestic banks in the short term to
attract new customers.
Liberalised market
Bangladesh has liberalised economy and the capital flow into and out of the country has been significantly
liberalised. This suggests that RSBC and other banks in the industry should easily be able to supply their
capital requirement in Bangladesh under normal market conditions.
This scenario does not indicate any other key suppliers who could influence RSBC’s operations in
Bangladesh banking market. So it is not possible to make any judgement about their strength of their
bargaining power.
Potential for future profits
Overall, it appears there is a relatively high level of competitive rivalry in Bangladesh banking industry
and customers also have a moderate level of bargaining power. However, the threat of new entrants and
the threat of substitute products appears to be reasonable weak.
Looking at these forces together suggests that the market should be a profitable one, and this corroborates
the analyst’s view.
However, the Bangladesh banking market is not necessarily equally profitable for all banks in it.
Consequently, the potential profitability for RSBC’s banking business within Bangladesh is likely to be
lower than the Bangladeshi State-owned banks.
Requirement: ii)
Competitive rivalry
Although, the market overall is profitable and growing, there is still likely to be a high degree of
competitive rivalry in it.
The State-owned banks in Bangladesh presents the strongest competitive threat to RSBC. The State-owned
banks in Bangladesh already share a major share of the retail banking busines in Bangladesh and their
position has been strengthened du to recent re-organisation and the launch of some new, successful and
profitable products.
Consumer preference
Bangladeshi consumers attitudes to change should also be a concern for RSBC. The consumers’ dislike of
change means they are likely to continue using State-owned and established banks rather than switching to
RSBC. Even though RSBC has a strong brand image and a long record of success, this may not be
sufficient to convince banking customers in Bangladesh to switch to RSBC.
Profit levels
The fact that RSBC is already successful in a number of other countries means that it should only continue
in Bangladesh if it can sustain an acceptable level of profit in Bangladesh. It appears that a few foreign
banks operating in Bangladesh could not do so and ultimately left Bangladesh banking market.
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RSBC does not appear to have any sources of sustainable competitive advantage which will enable it to be
more successful than these banks, or to reduce the dominance of Bangladeshi State-owned banks in the
market.
Advice:
In view of the above analysis, RSBC should be advised not to continue its retail banking business in
Bangladesh.
Competitive market: The high number of branded coffee shops in Bangladesh suggests that Bangladesh
coffee market is likely to be competitive, because customers will have a high degree of choice about where
to buy their choice. In this respect, branding, and the loyalty card scheme, could be valuable to CL if it
encourages customers to keep returning to CL shops to buy their coffee, rather than going to rival shops.
Customer Loyalty: By creating customer loyalty, a strong brand identity is a way of increasing or
maintaining sales; for example, by improving customer retention rates and encouraging repeat purchases.
This is the logic behind the loyalty cards being proposed by the marketing director.
However, whilst increasing sales will allow CL to increase its profits overall, it may not, by itself, have as
much impact as the marketing director might hope.
Importantly, CL currently generates more revenue per shop than the market leader, although its profit
margins are significantly lower.
In this respect, it seems that CL’s cost structure and its product mix may have a greater impact on
performance than brand awareness. For example, CL makes the highest profit margins on coffee sales, so
if it could sell relatively more coffee drinks compared to food and snacks, this would improve its profit
margins. The loyalty card scheme could help here, by encouraging customers to buy hot drinks so that they
qualify for their free drink. (Obviously, though, margins will then be reduced by the ‘free’ sixth drink.)
Product mix
Coffee Other drinks Food & snacks
% of total revenue 37.50% 12.50% 50.00%
Gross margin (%) earned per product 73.33% 40.00% 57.50%
However, although there appear to be more important factors affecting CL’s performance that its company
profile, branding could still have a positive impact on its performance.
Brand awareness: Brand awareness would be an indicator of CL’s position in the coffee shop market and
would indicate whether customers or potential customers do actually differentiate CL form its customers,
for example as offering higher quality products and service. If customers don’t associate CL’s products as
being higher quality than the competitors, then the money spent on higher quality ingredients and service
staff is effectively being wasted.
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Quality and trust: One of the key attributes of a successful brand is that it conveys a sense of quality and
trust to potential customers, thereby encouraging them to buy the product or service in question in
preference to a rival product.
Quality seems to be very important to CL: it uses high quality ingredients for its food and drinks and seeks
to ensure customer receive a high standard of service (by paying its staff wages above the industry average).
Differentiation: In this respect, CL appears to be trying to differentiate itself from its competitors on
grounds of quality. If it can ensure that its brand becomes synonymous with quality, then this will help CL
compete successfully with other branded coffee shops.
Premium price: Branding messages are usually qualitative rather then focusing, and therefore, reduce the
importance of price differentials between a product and its rivals. This could be very important for CL.
Customers do not appear to be price sensitive, yet CL is charging broadly the same prices as its competitors.
If CL is able to strengthen its brand, by focusing on quality and service, this may, in turn, allow it to charge
a higher price for its products. This could be crucial for CL’s profitability, because it could allow CL to
reverse the current situation in which its gross margin percentages are lower from its competitors’.
Requirement: ii)
Demand for the product: When deciding whether or not to increase the price of its coffee products, CL
needs to consider what impact the changes in price are likely to have on customer demand for them.
Therefore, market research will be important to assess how demand (and consequently the revenue) will
be affected by any change in price.
It seems that CL’s customers are not particularly price sensitive, which should increase the chances of the
finance director’s proposal. However, CL should still research their reaction to any change before
implementing it.
In this respect, it should be useful for CL to gauge the strength of any brand loyalty towards it.
Amount of increase: Equally, market research will give CL an insight into what price customers are
willing to pay for their coffee. CL competitive strategy (of differentiation based around quality) might
enable it to charge higher prices than its customers to an extent and still retain its customers. However, if
CL increases its prices too much, it is unlikely that the customers will remain loyal to it, even if it offers
higher quality coffee and service that its competitors.
Competitors’ pricing policies: Currently, CL seems to serve a higher proportion of “Fair Trade” products
than its competitors’ and this might help it justify its higher prices. However, if its competitors are also
planning to use more “Fair Trade” coffee, or increase the quality of other ingredients, this would reduce
the basis of differentiation between CL and its competitors. In this respect, any insights which CL could
gain into its competitors’ plans, before it changes it prices, would be useful.
Input prices: The finance director’s suggestion is designed to help CL increase margins. However, if the
price of coffee beans rises, it might need to increase prices in order to maintain its current margins.
Equally, if costs, such as the rents CL has to pay for its premises, rise, these may also increase the pressure
on CL to increase its prices in order to maintain its profit margins.
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Answer to the Question # 1 (c)
Reference:
Date:
Brovita Limited
Dhaka, Bangladesh
The consolidation of competitors, key geographical areas or markets through mergers or trade agreements
could also adversely affect Brovita Limited’s market share.
Reputational risk
Failure to protect Brovita Limited’s reputation and brand in the face of ethical, legal, moral challenges
could lead to a loss of trust and confidence, a decline in customer base, and could therefore affect the ability
of Brovita Limited to recruit and retain good staff.
Property risk
Continuing acquisition and development of property sites carries inherent risk;; targets to deliver new space
may not be achieved; challenges may arise in relation to finding suitable sites, obtaining planning or other
consents, and compliance with design and construction standards.
Economic risks
Brovita Limited will be affected by the underlying economic environment and the fiscal measures which
apply to the retail sector.
Product safety
Failures to ensure product safety could damage customer trust and confidence, affecting Brovita’s customer
base and therefore, financial results.
Brovita Limited’s financial risks are separately identified as, funding and liquidity, interest rate risk, and
credit risk.
There is perhaps even greater benefit to be gained from collaborating with suppliers on the design of
products which have positive supply chain characteristics such as, for example, ease of manufacturing, or
commonality across several end products (that is, where a single part can be used in a number of different
end products, reducing the amount of different parts which need to be held in inventory).
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Internal supply chain management
Internal supply chain management focuses on operations internal to an entity and includes all the processes
that are involved in planning for, and fulfilling, a customer order. “supply planning” lies at the heart of this
process. It uses he demand forecasts generated by demand planning, and the resources made available by
strategic planning, to produce and optimal plan to meet this demand with the resources available.
Including the customer in the supply chain also identifies the role that customers can play in the value
creation process. Many retailers now use self-service checkouts, while Ikea’s customers create their own
value by assembling their furniture at home. However, a more significant way in which customers can
create value is through being involved in the product design process (‘ço-creation’). For example, consumer
product manufacturers, including Lego and Nike, have now established online design studios where
customers can customise their own products to meet their specific needs.
The unprecedented effects of Covid-19 have shaken worldwide economies and supply chains. All key
textile-garment producing nations faced supply chain disruptions, factory closures, order
cancellation/suspension and export losses. Bangladesh as a major player in the garments sector has been
severely affected by the pandemic. Primarily, the supply of raw materials to local garment factories was
disrupted when China—Bangladesh’s main source for raw materials —paused all shipments between
March and April 2020, due to the coronavirus outbreak.
Supply chain refers to all inputs required to produce a product and fulfil a purchase. It includes planning
(demand planning & Supply Planning), raw materials sourcing, manufacturing, transporting, warehousing,
shipping etc. Fast delivery with required quality is now sought by buyers in this fast fashion era. Therefore,
a strong supply chain network could give an organization a leading position in all aspect.
But the concept of complete understanding of Supply Chain management is absent in most RMG sector
organisations in Bangladesh because of lack of understanding and need for it. The apparel industry is
lacking the correct supply chain management (know-how/ tools & techniques/ supply chain systems/
understanding of the apparel supply chain process flow) people who understand the complex nature of
supply chain management of apparel industry. Few apparel industries are putting sufficient emphasises on
their supply chain to align their supply chain strategy with their business processes and competitive
strategies and investing in the RMG planning systems.
The challenge now for Bangladesh RMG sector is to offer high-quality, low-cost products within a short
lead time; and to meet health, social and environmental compliances in the face of increasingly stiff
competition. To face the challenges, the apparel makers should focus on effective supply chain
management as it will ensure delivering the right product to the right place at the right time at the right
price.
Effective supply chain management is the way to offer high-quality, low-cost products within the shortest
possible lead time as it integrates the whole apparel supply chain as one. The RMG manufacturers need to
start working together with all the supply chain partners, as the landscape of low-cost sourcing countries
is about to change. Buyers in the future would be more interested in TCO (total cost of ownership) rather
than just the unit price. So now need to understand who the supply chain partners/stages are. In short –
Supply Chain Management (SCM) includes all stages that are involved directly or indirectly in fulfilling
customer request. This includes manufacturers, suppliers, transporters, warehouses, retailers, and
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customers. Within each company, the supply chain includes all functions involved in fulfilling a customer
request (product development, marketing, operations, distribution, finance, custom-er service).
So, in a nutshell it we can tell that Supply Chain is becoming the senses and organs for the organization.
So, we should consider the whole apparel supply chain as one, adopt a fact-based approach upon thoroughly
under-standing current realities, invest in the appropriate skills and constantly monitor and adjust to
optimise results in the current changing world.
Acquisition
Organic development is by far the most common growth strategy. There are drawbacks to this approach,
as identified above, and where the problems are significant a firm might choose alternatively to develop
the business through an acquisition. An acquisition is where one firm buys a target firm in order to assume
control of the target firm, its assets, markets, etc.
In a sense, it is logical that the most important drawback to organic growth is perhaps the most important
benefit of an acquisition growth strategy: speed to market. Once a suitable target firm has been identified,
the process to negotiate and acquire the firm may only take a matter of months. An acquisition would
enable DPML to obtain the assets, revenues and client base of the target firm and give it a market share
and brand recognition that may take several years to build organically. This would allow DPML to grow
much more rapidly than is possible organically and would enable it to benefit from the current opportunities
in the sector.
While speed would be the key advantage of an acquisition for DPML, the longer-term benefits to DPML
of this strategy will depend on how effectively if can execute the acquisition process. There is a clear risk
to DPML from this point of view in that neither Mr Deeder, nor Mr Arif, have any experience of the process
of acquisition. The firm is more likely therefore to make potentially serious misjudgments. To minimise
this risk, DPML will need to obtain excellent accounting, financial and legal advice.
Issues that may arise during the acquisition process include the initial difficulty in finding a suitable target
firm. A suitable firm in this case is one that is in a growth market, is performing at least adequately, and
where the owners are willing to sell. Even if DPML finds a prefect target firm, if the owners are not
interested in selling, DPML can do nothing about it: there is no such thing as a hostile takeover of a private
firm! DPML have not decided where it wants to locate, and this widens the pool of potential target firms.
Related to the difficulty of finding a suitable target firm is the temptation to overpay for it once negotiations
have started. It is possible that the acquiring firm, especially one with so little experience of the process as
DPML will become too emotionally invested in the deal, and not walk away, even when the price and
contract conditions have become excessive. There is the natural tendency to say, ‘we have put in so much
effort, we can’t give up now!’ The history of M&As is littered with firms that have overpaid for a target
firm. Building on this, it is not clear how DPML would intend to pay for an acquisition. Unlike organic
development, an acquisition usually requires a once off payment. It is likely that as DPML is a private firm,
that payment will be in the form of cash. The brief does not indicate how DPML would intend to finance
an acquisition. For example, if it is through debt, it would impose a further, significant, financing cost on
the combined firm. This obviously increases the financial risk to DPML and effectively increases the
acquisition consideration.
A last issue that will face DPML if it acquires another firm is how effectively it could manage the post-
acquisition integration process. The post-acquisition integration process is widely accepted as the stage
where acquiring firms confront the most problems. The post-acquisition integration process involves
absorbing the acquired firm over time and integrating its people, systems, and culture. This can create huge
difficulties for the acquiring firm. In general, if the staff and culture of the acquired firm are resistant to the
takeover then morale and motivation can suffer. This can lead to the performance of the acquired firm
declining. While this is an issue in general, DPML may be able to avoid this scenario. There is unlikely to
be a significant rationale for DPML to make dramatic cultural or operational changes to any firm that they
may acquire. DPML have no experience in this area and both firms will be operating in separate geographic
markets, so the need for closely integrated operations is probably limited.
Recommendation
Both organic market development and an acquisition of a suitable target firm are realistic options for
DPML. Perhaps the key decision criteria that DPML must evaluate is which is more important: the speed
to market of acquisitions or the lower risk and increased control afforded by organic market development.
As an initial step, DPML should try to identify a suitable target firm that is willing to be acquired. If such
a target firm is identified, DPML should pursue the acquisition growth strategy, as the market opportunity
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to benefit from such a deal may be to an extent reliant on the current very positive conditions. A key issue
in the context of this strategy is Mr. Deeder and Arif’s lack of experience. It would be imperative that
DPML obtain professional accounting, financial and legal advice through the entire acquisition process. In
the absence of a suitable target firm, or where the acquisition consideration would be uneconomic, DPML
should instead pursue the organic market development strategy.
The net payment three months hence is GBP 116,000 -USD197,000/1.7063 = GBP 546
The net payment six months hence is USD (447,000 – 154,000)/1.6967 = GBP 172,688
The Dollar receipts can be used in part settlement of the Dollar payments, so only the net payment is
hedged.
Money market
USD 197,000 will be received three months hence, so USD 197,000/(1 + 0.09 X 3/12) may be borrowed
now and converted into GBP, the Dollar loan to be repaid from the receipts.
The equation for the USD 197,000 receipt in three months is to calculate the amount of Dollars to borrow
now and then to find out how much that will give now in GBP. The final amount of GBP after three months
is given by multiplying by GBP lending rate.
USD 293,000 (net) must be paid six months hence. We can borrow GBP now and convert it into USD,
such that the fund in six months will equal USD 293,000. The GBP payment in six months’ time will be
the principal and the interest thereon. A similar logic applies as for the equation above except that the
situation is one of making a final payment rather than a receipt.
Requirement: ii)
Available put options are at USD 1.70 (cost 3.45 cents per GBP) and at USD 1.80 (cost 9.32 cents per
GBP).
Contract required GBP 172,353/GBP 12,500 = 14 (to the next whole number)
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Cost of options = 14 X 12,500 X 3.45 cents = USD 6,038
14 contracts will provide, for GBP 12,500 X 14 = GBP175,000, USD (175,000 X1.70)
= USD 297,500
The overall cost is GBP 175,000 + (USD 293,000 + USD 6,038 + USD 297,000)/1.6967
= GBP 175,906
As this figure exceeds the cost of hedging through the forward exchange market (GBP172,688), use of
USD 1.70 options would have been disadvantageous.
Note. The rate of 1.6967 is used instead of 1.7006 because buying 14 contracts leaves the company slightly
short of Dollars (by USD 293,000 + 6,038 – USD 297,500
= USD 1,538
the overall cost is GBP 175,000 + (USD 293,000 + USD 16,310 – USD 315,000)/1.7006
= GBP 171,654
The figure is less than the cost of hedging through the forward exchange market, so use of USD 1.80 options would
have been preferable.
There may be number of challenges in conducting an ethical assurance. Key challenges are mentioned
below:
Defining assurance: A lack of understanding may create an expectation gap between providers and users
of assurance services. Ethics assurance would be about adding credibility to an organisation’s ethical
behaviour. It is not ethics insurance, a source of recourse when something goes wrong with the business.
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Problems of measurement: Providers of assurance (in particular, professional accountants) may be
experienced in auditing quantitative information, but ethics is a more subjective area. So, it may prove
difficult to identify any suitable criteria and evidence on which to base an assurance opinion.
Even if controls and procedures can be verified and measured, this may not be enough Ethics is ultimately
about individual behaviour. Assessing and measuring individuals’ ethical standards of behaviour as part of
the assurance process may be an onerous task.
Lack of agreed standards or frameworks for ethical assurance: ISAE 3000 is internally recognised
standard on assurance engagement, but it only includes high level principles in relation to ethical assurance.
Therefore, it will be left to individual practitioners to tailor the high-level principles of the ISAE to suit the
needs of individual clients.
Reporting: How should information on ethical standards be reported, and to whom? Businesses must find
a balance between providing a vast amount of information (because all of it is relevant to ethical assurance)
and not producing enough to adequately address stakeholders’ concerns. Equally, they must decide whether
to report internally or externally.
Demand for internal assurance, presented to the board or to a Corporate Responsibility Committee, is likely
to develop before ethical assurance is published externally, because companies will want to assess their
own ethical procedures internally before exposing them to wider (external) scrutiny.
However, two possible forms that a publicly reported ethical assurance opinion could take have been
suggested.
• The first is an assurance opinion as to whether he controls in place are appropriately structured to
achieve the desired objectives.
• In the second, the assurance provider attests not only to the existence of controls but also that they
work in practice.
The key question is the nature of the revenue earned by NUVISTA Limited on the internet sales. NUVISTA
Limited is actually acting as an agent for Padma Limited. At no point of do the risks and rewards of
ownership of the goods sold on the internet, pass to NUVISTA Limited. This is evidenced by the fact that
goods are sent directly to the customers by Padma Limited and they are responsible for all after-sales issues.
The revenue earned by NUVISTA Limited is therefore the commission on sales generated rather than the
sales price of the goods sold. Equally, there will be no recognition of cost of sales or inventory in respect
of these items. Therefore, the current treatment in the financial statements of NUVISTA Limited is
incorrect.
In accordance with IFRS 15, commission received by a party acting as an agent should be recognised as
earned. As NUVISTA Limited has no further obligations once the initial transaction has been undertaken
the commission should be recognised at this time, commission of approximately BDT. 105,000,000 Should
be recognised (BDT 600,000,000 X 17.5%).
An additional adjustment may be required in resect of sales made not despatched. The BDT 600,000,000
trading revenue should be eliminated with any associated cost of sales and inventory. These amounts are
likely to be material to the financial statements of NUVISTA Limited as on June 30, 2021.
Conclusion:
The financial statements of NUVISTA Limited as on June 30, 2021, should be revised as they do not
comply with IFRS 15. If management refuse to adjust the financial statements, the auditor will need to
qualify the audit opinion on the grounds of a misstatement (disagreement) which is material but not
pervasive.
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Answer to the Question # 5 (c)
Requirement: i)
Requirement: ii)
Leadership is a key element of the effectiveness of any organisation; without strong leadership
organisations tend to drift and lose purpose. In general, leadership is seen to be the ability to influence
other people toward the achievement of the organisation’s goals. When one considers successful
organisations, it is difficult to envision their success without the impact of the leaders, as they are at the
apex of the organisation, senior management have both the greatest opportunity, and responsibility, to
influence the organisation. This is true for all aspects of the organisation: operational, financial as well as
ethical.
The role of the strategic leaders of a business is multifaceted. The strategic leaders establish the context for
the firm’s stakeholders to contribute to the firm. Strategic leadership involves anticipating the future
envisioning the organisation, and empowering others to create strategic change. Rowe (2001) emphasises
the need for “strategic leadership” if organisations are to be successful over the longer term. At the heart
of strategic leadership is the need to effectively balance long-term viability and short-term financial
stability.
Within organisations, no major initiative or programme can succeed without active senior management
support. If senior management do not actively spend their time and political capital, as well as the
organisation’s resources to support an initiative, it will inevitably wither over time. This is because only
the senior management are in the position to mobilise significant organisational resources, especially
money and time, to any given initiative. and, since there is always a scarcity of both, senior management
can quickly establish the priorities for the organisation in how they allocate these resources. Middle and
lower-level management, as well as employees, will evaluate this and prioritise their own activities
considering this: “if the CEO does not care about it, why should I?”
One of the first and obvious things that Mr. Imam must do in his new role is to communicate widely and
on a recurring basis the need to a more ethical approach across the firm. He should use fora such as
management meetings, employee gatherings, newsletters, emails, etc., to highlight the new ethical
expectations of the firm. While the legitimate power he possesses will allow him to do this, perhaps more
important is the referent power he possesses; management and staff will look up to and respect him.
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In addition to talking about ethical standards, through her actions, Mr. Imam will be able to reinforce the
need to act in accordance with the firm’s ethical expectations: that is, “actions speak louder than words”.
In addition, Mr. Imam can negotiate for budget allocations to be released for the various activities identified
above – ethics training, the appointment of an ethics officer. these will require relatively significant budgets
but with no direct or immediate impact on Concord BD’s profitability. similarly, he can influence HR
policies, including performance evaluation measures, to explicitly include reference to ethical practice.
While at the same time he will be able to ensure that any identified ethical infringement is appropriately
investigated and disciplined, as identified by Rowe (2001), an emphasis on values and ethics is central to
strategic leadership. Strategic leaders use these to help build a more effective organisation, and therefore a
more successful organisation over the longer term. This is a point that Mr. Imam needs to remember and
perhaps needs to reinforce with his senior management colleagues if the suggested attitude of the chair of
the board is to be eradicated in the firm. Research clearly supports the belief that the senior management
of a firm, and obviously, the CEO, can have a large impact on the prevailing organisational culture. This
is true for all aspects of culture, including the ethical ethos of the firm. Mr. Imam has the legitimacy, the
influence, and the experience to reshape Concord BD’s ethical culture and with that its long-term success.
However, he will only succeed if he invests his time, energy, influence, and organisational resources into
the initiative.
---The End---
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