Mezza

Overarching corporate aim

The main objective of the directors is to maximise the wealth of the shareholders and therefore
any decisions taken should be aligned with this primary objective. However, the company has
other stakeholders and directors should be sensitive to potential negative implications from
implementing the project.
Key issue (1): Will the project add value?
Positive factors
At first glance, it would appear that the project would be adding value, as it is meeting the need
of dealing with climate change with many countries around the world. The project would
potentially lead to an improvement in the company’s reputation as a company with ESG
(Environmental, Social & Governance) investments and therefore an increase in its share price.
Moreover, the company’s relationships with senior government officials in Maienar, who show
interests in the project and support the development of the project and, potentially, future
projects. In addition, the project is being done by its subsidiary, there are likely to be future
opportunities for the subsidiary to work on similar projects.
Other factors to consider
Although the project would add value to the company, further investigations should be carried
out to ensure that the certantity of cash inflows of the project, especially when Mezza Co is
diversifying into new areas. The extent of the risk should be assessed prior to progressing with
the project. Are the current revenue and cost estimates realistics? What is the likelihood of
competitors entering the market and the potential effects on revenue and market share? A full
investigation, using such means as sensitivity analysis and duration, is required to answer such
questions.
Moreover, it is worth noting that the directors’ remuneration package includes share options and
therefore they might take risky decisions regarding this project in order to increase the share
price of the company or effectively their personal wealth. This may against the wishes of
shareholders and other stakeholders who may have a more risk-averse attitude. Therefore, it is
important to ensure that the directors promptly report to shareholders and stakeholders about
relevant information about the project, which would allow them to make necessary decisions
such as direct interventions or selling their shares to put pressure on the directors.
Other factors that must be investigated include the length of time it will take to get the product to
market, any additional infrastructure required and potential expertise needed.
Key issue (2): Plant location
Positive factors
Locating the plant at Maienar appears to be a good decision as Mezza Co has already developed
an infrastructure suitable for the new project and a strong relationship with senior government
officials in Maienar who interests developing new industries. The ties to senior government
officials are likely to be particularly useful when trying to deal with legal and administrative
issues, thus reducing the time between development and production actually starting. However,
there are other factors should be taken into account before carrying out this project as discussed
below.
Other factors to consider
The development of the project will negatively affect the fishing ground in Maienar and
therefore the life of local fishermen. Because the fishermmen are poor, have little political
influence and small contributions to the economic development of Maienar, it might be unethical
to carry out the project without paying any attention on dealing with the consequences of the
project on the fishermen. Given that Mezza has an excellent corporate image, it is unlikely that it
will want to ignore the plight of the fishermen. Therefore the company might consider, for
example, including the costs of compensation within the costs of the project. Alternatively, it
could offer the fishermen priority on new jobs that are created and emphasise the additional
wealth that the project is likely to create.
Mezza Co should also consider the impacts on the local environment of Maienar. It appears that
the project would adversely affect the coastal area of Maienar, which has many potentials for
developing tourism. There could be a risk that other tourism companies identify the opportunities
of tourism within Maienar and therefore fight against Mezza Co to protect their interests, which
will consequentially increase, for example, legal costs. Therefore, it is necessary to pay attention
on competitive actions of tourism companies.
Mezza Co could also consider alternative locations for the plant, although this is likely to be
expensive, given the need for certain infrastructure already present in Maienar. Alternatively, the
company could try to find an alternative process for growing and harvesting the plant that would
not have adverse effects on wildlife and fish stocks. Again, this is an expensive option and any
such costs would have to be set against expected revenues to determine value added.
Mezza Co will have to manage its relationship with Maienar’s Government very carefully as it
does not want to appear to be influencing government decisions. Mezza needs to make it very
clear that it is following proper legal and administrative procedures – and is working with the
Government to protect and improve the country, rather than exploit it for its own gains.
The impacts of the project on capitals within integrated reporting
Integrated reporting looks at the ability of an organisation to create value and considers
important relationships, both internally and externally. It involves considering the impact of the
proposed project and six capitals as follows.
Financial
The integrated report should explain how commercialising the product should generate revenues
over time, be an important element in diversification and make a significant contribution to the
growth of Mezza Co. The report should also show how Mezza raise finance for this project and
evaluate the cost of, for example, equity, debt or internally generated sources.
Human
Mezza should show how the employment opportunities provided by the new facility link to how
Mezza has been using local labour in Maienar. It should highlight the ways in which the new
facility allows local labor to develop their skills. However, the report also needs to show whether
Mezza is doing anything to help the fishermen with their loss of livelihood, since the adverse
impact on the fishermen would appear to go against Mezza’s strategy of supporting local farming
communities.
Manufactured
The report would identify the new facility as an important addition to Mezza’s productive
capacity. It would also show how the infrastructure that Mezza already has in Maienar will be
used to assist in growing and processing the new plant.
Social and relationship
The development of the plant and the new facility should be reported in the context of Mezza’s
strategy of being a good corporate citizen in Maienar. It should explain how the new plant will
assist economic development there and in turn how this will enhance the value derived to Mezza
from operating in that country.
Intellectual
The report should show how Mezza intends to protect the plant and hence it future income by
some sort of protection, such as the patent. It should also highlight how development of the plant
fulfills the aims of the subsidiary, to develop products that have beneficial impacts on other
capitals
Natural
The report needs to set the adverse impact on the area and the fishing stock in the context of the
longer-term environmental benefits that development of the plant brings. It also needs to show
the commitments that Mezza is making to mitigate environmental damage.