Last year, Oddimental Petroleum Company (OPC) informed shareholders that the company

intended to spend $50 million to build a museum in order to house the art collection of
OPC’s billionaire founder, CEO and chairman Dr Arthur Clubman. Furthermore, $250,000
would be spent on his biography. The company will construct the museum with a 30 year
rent free entitlement culminating in an option for the museum to buy the building outright
for cost price of $50 million. The board believes that this would cement the goodwill OPC
gained through its continuing association with the Clubman Foundation (a charitable trust).
Further favourable tax treatment exists for charitable donations and shareholders would
benefit from increased brand recognition and perceptions of social responsibility. As far as
the biography was concerned, the company would receive its money back from sales
proceeds and any profits would be forwarded to the museum’s fund. Since the
announcement, critics have suggested that the real cost of the museum is likely to be nearer
$100 million, and that its content is widely considered to be low quality art. Further, the
State museum originally promised the art is resentful of Dr Clubman’s decision to renege on
the deal and create his own facility. Tax benefits are also in question since general advice is
that, to be allowable, they should not exceed 10% of revenue (currently $300 million).
Although in poor health, Dr Clubman is still active as CEO. The board of directors were
selected from those within and outside the company, all having close associations with the
founder. The average board age is 73. Unusually, it would appear that any press releases
relating to the deterioration of Dr Clubman’s condition are met with a sharp increase in
share price. Construction of the museum has already begun even though the special
committee of nonexecutive directors drawn to consider the proposal (at the request of
shareholders) have not formally approved it.
Required:
A: Examine the importance of governance from a corporate and stakeholder perspective,
with particular reference to OPC.
B: Explain what is meant by independence, fairness and accountability and assess their
importance as underlying principles of corporate governance. Refer to the case of OPC
where necessary.

 The Importance of Governance from a Corporate and Stakeholder

Perspective: A Case Study of OPC
Good corporate governance is crucial for a company's success and ensures the interests of
both the corporation and its stakeholders are considered. Examining OPC's situation
highlights the importance of governance from both perspectives:

1. Corporate Perspective
  Financial Risks: The museum project raises several financial concerns. The potential
cost overrun ($50 million to $100 million) and questionable art collection value could
negatively impact shareholder returns.
 Decision-Making Transparency: The board's close ties to Dr. Clubman raise concerns
about independent decision-making. The special committee's lack of formal approval
for construction despite shareholder requests indicates a potential lack of
transparency.
 Sustainability: OPC's reliance on Dr. Clubman's health for positive press and
potential leadership issues due to his age raise questions about the company's long-
term sustainability.
 Ignoring Stakeholder Concerns: OPC disregarded shareholder concerns by starting
construction despite an unapproved proposal. This weakens trust and potentially
damages future investments.

2. Stakeholder Perspective:
 Shareholders: Their investment is potentially at risk due to the museum project's
financial uncertainties and the questionable tax benefits.
 Employees: The project could divert resources from employee well-being or future
growth opportunities.
 The Public: The museum's low-quality art could be a disservice to the community,
and the tax benefits may not be legitimate. The public may also be concerned about
the museum's long-term viability.
 State Museum: OPC's decision to build their own museum might damage their
relationship with the state museum.

Recommendations for Improved Governance at OPC:

 Independent Board Review: A truly independent board should re-evaluate the

museum project, considering financial viability, tax implications, and the art
collection's value.
 Transparency and Communication: OPC should openly communicate with
stakeholders about the project's rationale, decision-making process, and potential
risks.
 Succession Planning: A clear succession plan needs to be established to address
potential leadership issues due to Dr. Clubman's health.
 Focus on Core Business: OPC should prioritize its core business activities to ensure
long-term financial health and shareholder value.
In conclusion, OPC's situation demonstrates the importance of strong corporate
governance. By prioritizing transparency, accountability, and responsible decision-making,
companies can better serve the interests of both the corporation and its stakeholders.

Independence, Fairness and Accountability in Corporate Governance

Effective corporate governance relies on three key principles : independence,

fairness, and accountability. Let's break down each concept and see how they apply to the
case of Oddimental Petroleum Company (OPC).

1. Independence:

 Meaning: An independent board of directors, particularly those in key oversight

roles, should be free from conflicts of interest and undue influence from
management. This allows for objective decision-making in the best interests of the
company and its shareholders.
 Importance: Independent directors can challenge proposals that benefit
management at the expense of shareholders. They can also provide a fresh
perspective and expertise.
 OPC Case: The close association of board members with Dr. Clubman raises concerns
about independence. Their decisions might be swayed by loyalty to the founder
rather than objective analysis.

2. Fairness:

 Meaning: The corporation should treat all stakeholders (shareholders, employees,

creditors, customers, community) fairly and equitably. Decisions should be made
with consideration for the rights and interests of each group.
 Importance: Fairness builds trust and fosters long-term sustainability. It ensures that
no stakeholder group is exploited for the benefit of another.
 OPC Case: The proposed museum spending appears unfair to shareholders. The
museum benefits Dr. Clubman more directly, and potential tax benefits are
questionable. Additionally, the decision disregards the resentment of the State
museum, a potential stakeholder.

3. Accountability:

 Meaning: The board of directors and management are accountable for their
decisions and actions to the shareholders and other stakeholders. This includes
transparency in financial reporting and decision-making processes.
  Importance: Accountability ensures responsible management and discourages self-
serving actions. It allows shareholders to hold the board responsible for
performance.
 OPC Case: Several aspects raise accountability concerns:
1. The lack of formal approval for museum construction despite shareholder concerns.
2. The potential overspending on the museum's cost and questionable art quality.
3. The unusual rise in share price after news of Dr. Clubman's health, suggesting
manipulation.

Conclusion:
The OPC case highlights the importance of independence, fairness, and accountability in
corporate governance. Without these principles, decisions can be skewed to benefit
management or a select group of stakeholders, ultimately harming the company's long-term
well-being and potentially leading to legal or financial repercussions.

Imagine OPC as a big team effort. Good leadership (governance) is key to making the team
successful. Let's see why:

The Team's Money: The museum project might cost way more than expected and the art
might not be that valuable. This could hurt the team's finances (shareholders).

Making Decisions Together: The people in charge (board) seem too close to the boss (Dr.
Clubman) and might not be making the best choices for the team. They also started building
the museum without listening to everyone's concerns.

What Happens in the Future?: If the boss gets sick, the team might struggle without a good
plan (succession plan) for a new leader. Also, focusing too much on the museum might take
away from the team's main job.

Everyone who cares about the team (stakeholders) has something to consider:

 The Investors (Shareholders): Their money is at risk.

 The Employees: The museum project might take away resources they need.
 The Community: The museum's art might not be that great, and the tax breaks
might not be legit.
  The Other Museum: They might be upset because OPC decided to go their own way.

To fix things, OPC needs:

A New Team of Leaders (Independent Board Review): People who aren't afraid to question
the museum project and make choices based on what's best for the whole team.

To Be More Open (Transparency and Communication): OPC needs to explain the project
better, why they're doing it, and what the risks are.

A Plan for When the Boss Retires (Succession Planning): The team needs to know who will
take over if Dr. Clubman can't lead anymore.

To Get Back to Work (Focus on Core Business): OPC should focus on what they do best to
make money for the team in the long run.

By working together and making good decisions, OPC can be a successful team that benefits
everyone involved.

A: Importance of Governance from a Corporate and

Stakeholder Perspective (OPC Case)
Effective corporate governance is crucial for a company's success and the well-being
of its stakeholders. In the case of OPC, governance failures are evident, raising
concerns from a corporate and stakeholder perspective:

Corporate Perspective:

 Financial Mismanagement: The museum project raises concerns about financial

mismanagement. The inflated cost estimates, questionable tax benefits, and
potential reputational damage could harm OPC's bottom line.
 Focus on Founder's Interests: Prioritizing the founder's art collection over
shareholder value weakens corporate governance.
 Lack of Oversight: The board's close ties to Dr. Clubman and their age raise
questions about independent oversight and ability to make objective decisions.

Stakeholder Perspective:

 Shareholders: The museum project disregards shareholder interests. Shareholders

might lose money if the museum fails to generate profits or provide the promised tax
benefits.
 Employees: The project could divert resources away from employee benefits or
growth opportunities.
 Taxpayers: If the tax benefits are questionable, it suggests OPC might be taking
advantage of loopholes at the expense of taxpayers.
 Public: The museum's low-quality art could damage OPC's reputation and public
perception of its social responsibility efforts.

B: Independence, Fairness, and Accountability in

Corporate Governance (OPC Case)
Strong corporate governance relies on three key principles:

 Independence: The board of directors should be independent of the CEO and

management to ensure objective decision-making. In OPC's case, the board's close
ties to Dr. Clubman suggest a lack of independence. This raises concerns about
potential conflicts of interest.
 Fairness: Decisions should be made fairly, considering the interests of all
stakeholders, not just the CEO or controlling shareholders. OPC's focus on the
museum project prioritizes Dr. Clubman's interests over those of shareholders and
potentially other stakeholders.
 Accountability: Management and the board are accountable for their decisions to
shareholders and other stakeholders. OPC seems to lack accountability as the board
pushes through the museum project despite shareholder concerns and potential
financial risks.

OPC Case Analysis:

All three principles are lacking in OPC's governance structure. The lack of
independence and accountability allows Dr. Clubman to pursue a project that may
not be in the best interests of the company or its stakeholders.

This case highlights the importance of strong corporate governance to ensure

responsible decision-making that considers the long-term well-being of the company
and all its stakeholders.

Mendelow's Matrix:

Mendelow's Matrix helps assess the power and legitimacy of stakeholders. By

plotting stakeholders on this matrix, we can determine the appropriate level of
engagement required for each.

OPC Stakeholders in Mendelow's Matrix:

 High Power, High Legitimacy (Shareholders): These stakeholders have

significant influence and a strong claim to be considered. OPC needs to actively
engage shareholders, address their concerns, and demonstrate the museum
project's potential benefits.
 High Power, Low Legitimacy (Dr. Clubman): While Dr. Clubman holds significant
power, his personal interests may not fully align with company goals. Good
 governance requires managing his influence to ensure decisions prioritize OPC's
long-term well-being.
 Low Power, High Legitimacy (Employees, Public): These stakeholders deserve
consideration despite lacking direct control. OPC should communicate the project's
rationale and potential positive impacts on them.
 Low Power, Low Legitimacy (State Museum): While their influence is limited, OPC
could benefit from building a positive relationship with the State Museum to improve
community perception.