QUIZ 2 QUESTION 1 (25 Marks) An employee, Fred, working in the accounts office of a medium-sized

company listed on the London Stock Exchange, was working late one evening during the week. He
realised he had left his pen in the boardroom at an earlier meeting and, given its value, went upstairs to
look for it. As he approached the door he heard the following discussion: "Chief Executive: I am deeply
concerned that if this fall in profit figures is disclosed in the next annual report, there will be all sorts of
problems with the shareholders. We may even lose a number of big investors. Non-executive director
(also the cousin of the Chief Executive): (large sigh) Well, I suppose we could always find a way of
making them look better. Chief Executive: How? I can't see it at all. Non-executive director: Well, we
could make them just slightly higher than last year's figures by including the proceeds of the sales of our
toothbrush division. Chief Executive: But the sale doesn't go through until October. Non-executive
director: No, but it will ... and it doesn't make much difference, we need the money on the books now.
Chief Executive: But when the accounts are signed off, won't that be fraudulent? Non-executive
director: Not really ... I don't see why ... it's just a manipulation of timing rather than numbers. Chief
Executive: OK. That sounds good to me. "Let's sort it out now." Fred heard one of them move towards
the door, and quickly slipped back to the stairs. He left work and spent the evening worrying about what
he should do, if anything. He decided he would anonymously ask the Company Secretary how he could
deal with this situation, and bring the issue out into the open. Required: As Company Secretary you
receive a report from the employee about the overheard conversation. Write a brief summary for board
members of the corporate governance problems raised by this employee, and the weaknesses in the
company's corporate governance which are evident from the conversation which was overheard. (25
Marks)

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Corporate governance is very crucial in any company or businesses. You will likely attract more
stakeholders if you publicise your corporate governance and explain how your organisation operates.
This can include organisations interested in collaborating with you and promoting your firm, lenders
impressed by your internal controls and fiscal policies, government agencies, new workers, members of
the media, suppliers, and vendors. The more internal information you can publish without
embarrassment, the more transparent your company appears - and this is a terrific approach to increase
internal and external confidence. There have been an issue raised by one of the company employee
regarding a potential breach in the companies corporate governance. As a company secretary, it is
entirely my responsibility to ensure that corporate governance is maintained well by the company. Let
me educate you further on corporate governance issues. The first one is fairness. Stakeholders

should be treated fairly and equally at all levels. Violations should be effectively addressed. The second
one is transparency. There should be no reason for the organisation to hold secrets. The transactions
and procedures of the organisation should be visible to outsiders. Third is, leadership. Corporate
governance is responsible for overseeing important strategies and fostering a culture that allows the
company to function at its best. The fourth is stakeholder engagement ensuring that key stakeholders
are involved in the business in order to position the company for the greatest possible outcome. And the
last is accountability, adopting and owning strategies as well as the actions required to fulfil the
organization's long-term objectives. According to sources, it has been said that there might be a
manipulation in the company profit figures as to satisfy the shareholders and investors. This action may
make the investors and shareholders happy but the consequences the company and the board will face
in the future would be damaging the reputation of the company. Being transparent to the shareholders
and investors are very important. Even if the profit does not look great in the accounts its totally fine.
The board can try to find ways to raise a higher profit in the future. Lying and manipulating figures is a
serious criminal offence. Any company who does this kind of activities will be seriously punished
through fines and ruining the company name. You will likely attract more stakeholders if you publicise
your corporate governance and explain how your organisation operates. This can include organisations
interested in collaborating with you and promoting your firm, lenders impressed by your internal
controls and fiscal policies, government agencies, new workers, members of the media, suppliers, and
vendors. The more internal information you can publish without embarrassment, the more transparent
your company appears - and this is a terrific approach to increase internal and external confidence. It is
important to comply to corporate governance because of the following reasons. Major conflicts of
interest, as well as possible fraud risks, can be mitigated by corporate governance. You can prevent
possible concerns with improper employee behaviour by performing external audits, requiring multiple
approvals when transferring large sums of money, or prohibiting the hiring of family members for
significant jobs.

The guiding principles that a corporation establishes to direct all of its activities, from compensation to
risk management to employee treatment to reporting unfair practises to its impact on the environment,
and more, are referred to as corporate governance. A firm with strong, transparent corporate
governance makes ethical decisions that benefit all of its stakeholders, allowing it to position itself as an
appealing investment option if its financials are in good shape. Bad corporate governance causes a
company's collapse, which often results in scandals and bankruptcy. When a corporation goes against its
corporate governance policy, it sends a message to its shareholders that it is untrustworthy. This
undermines the shareholders' faith in the company and causes them to feel deceived or misled. If
shareholders fear the company is about to make a terrible business choice, they may jump ship to avert
a potential loss. Investors may be turned off by a company's failure to follow its corporate governance
strategies. For investors, the level of implementation of corporate governance principles (public
disclosure of information, protection of shareholder rights, and equal treatment of shareholders) and
profitability, which ensures a return on their investment, are two of the most important factors to
consider when making an investment decision. A corporation that has a reputation for not adhering to
corporate governance strategies may face increased government scrutiny from departments attempting
to ensure that the company is operating legally. If something goes wrong, this puts the company in the
limelight