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AC 311: CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITIES

DISCUSSION QUESTIONS 2024/2025
Question 1:
“I served for one fateful year on the board of Penn Central. The education was fast, brutal and highly
practical. Even today the lawsuits are not settled and that education has cost me several times more
than the price of a Harvard Business School tuition. At each Penn Central directors’ meeting, which
only lasted one and a half hours, we were presented with a long lists of relatively small capital
expenditures to approve, we were shown sketchy financial reports which were rarely discussed in any
detail. The reports were not designed to be revealing, and we were asked not to take them away
from meeting. We always had an oral report by the Chief Executive Officer promising better results
next month which never came true” (Louis Cabot, a Harvard Professor in International Corporate
Governance, A Comparative Approach by Thomas Clarke, p.41).

Required: Comment on the effectiveness of the board of Penn Central.

Question 2:
ARCELOR AND MITTAL MERGER, 2006
The merger of steel makers Arcelor and Mittal in 2006 produced the world’s largest steel company,
with 330,000 employees and forecast earnings of US$15.6 billion. Arcelor had fought a long defensive
battle against the hostile takeover, valued at around US$35 billion. Arcelor was incorporated in
Luxembourg and had adopted European governance architecture, with a supervisory board, including
employee representatives, and a management board. Mittal was a family company with a tradition of
growth through acquisition, in which the founding family still played the dominant role. Arcelor had
criticized Mittal for its inadequate controls, because it had many Mittal family members and few
independent directors on its board. In the merged Arcelor Mittal company the Mittal family retained
43.5 percent of the voting equity. The new board was eighteen strong, with chairman Joseph Kinsch,
who was previous chairman of Arcelor, president Lakshmi Mittal, nine independent directors, plus
employee representative directors and nominee directors to represent the interests of significant
shareholders. The General Management Board was chaired by the CEO Roland Junck, with son of
Lakshmi Mittal, Aditya Mittal as Chief Finance Officer (CFO).
Required:
i] What is your opinion on the effectiveness of the new board?
ii] What is your opinion on the effectiveness of the new board?
iii] With eighteen members, is the board likely to prove a viable vehicle for strategic discussion?

Question 3:
RJR Nabisco
CEO Tylee Wilson spent $68 million developing an ultimately distraous “smokeless” cigarette without
telling the board. As chronicled in Barbarians at the Gate, even in an epic of corporate excess, Wilson
directors were livid that he had far exceeded his spending limits without board approval.

“Why didn’t you tell us about this sooner?” Juanita Krepps demanded. “You trust hundreds of
company people working on this project; you trust dozens of people at and agency you’re
working with; you trust outside suppliers and scientists-but you don’t trust us,” she said. “I,
for one, absolutely resent that”

Wilson’s successor, F. Ross Johnson, behaved similarly. He handled his board with a combination of
lavish perquisites and meagre information. He arranged for his directors to rub shoulders with
celebrities, use corporate planes and apartments, and he even endowed chairs at their alma maters
with corporate funds. All this made hard for directors to push him on tough questions. Two Wall
Street Journal reporters described the life of an RJR Nabisco board member: “A seat on RJR Nabisco’s
board was almost like Easy Street: lucrative directors’ fees, fat consulting contracts and the constant
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loving care of the company president and chief executive officer, F. Ross Johnson. ‘I sometimes feel
like the director of transportation’ he once remarked, after ordering up a corporate jet for a board
member. ‘But if I’m there for them, they’ll be there for me’. While he was dazzling his handpicked
directors, who could expect them to complain about his jets and country club?

Required:
i] Comment on the effectiveness of the RJR Nabisco board of directors with former and current
CEO.

ii] What is the governance implication of the phrase ‘But if I’m there for them, they’ll be there
for me’?

Question 4:

The following are the provisions of a board of directors of a disguised public sector entity operating in
one of the emerging economy in East Africa:
Board Composition
1. The Board of Directors shall consist of (a) a Chairman and Vice Chairman who shall be non-
executive (b) four non-executive members, and (c) the Director General of an entity.

2. In proposing names of persons for appointment as Chairman and members of the board, the
Nomination Committee, the President and the Minister shall each have regard to appoint
persons who: (a) are graduates of a recognized University, (b) have at least ten years of
experience in one or more of management, law, economics, finance or engineering, (c)have
knowledge of industry, (d) have satisfied the Committee that they are unlikely to have a
conflict of interest, (e) are willing to serve as members, and (f) are, in the opinion of the
Committee, otherwise suitable to perform the functions and duties of a member competently
and honestly.
Tenure of Appointment
1. The Chairman, the Vice Chairman and members of the Board shall be appointed for the
following fixed terms: (a) a Chairman-four years, (b) Vice Chairman-three years, (c)two
members-four years, and (d)two other members-five years.

2. Members including the Chairman shall each be eligible for re-appointment for one further
successive term and shall not otherwise be eligible for re-appointment.
Secretary of the Board
1. The Board shall appoint a lawyer of not less than ten years of experience to be the Secretary
of the Board.

2. The Secretary of the Board may take part in proceedings of the Board but shall have no vote.
Meetings of the Board
1. The Board shall meet at least four times yearly at such times and places as it deems
necessary for the transaction of its business and it shall convene special meeting upon
request by the majority of members.

2. An ordinary meeting of the Board shall be convened by the Chairman and the notice
specifying the place, date and time of the meeting shall be sent to each member at his usual
place of business or residence not less than ten days before the date of the meeting and
where the Chairman is unable to act by reason of illness of other cause or is absent from the
Country, the Vice Chairman may convene the meeting.
3. The Chairman or, in his absence, the Vice Chairman, may on his own motion, and shall, if
requested in writing in that behalf by at least half the members, convene a special meeting of
the Board.

4. The quorum at any meeting of the Board shall be half of the members of the Board.
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Absence from three consecutive meetings

Where any member absents himself from three consecutive meetings of the Board without sufficient
cause, the Board shall advise the appointing authority and the appointment authority may terminate
the appointment of the member and appoint another member in his place.

Required: Evaluate effectiveness of the board which is formed based on the above provisions.

Question 5:
Weinstein Co. Board Fires COO David Glasser for Cause
By Gene Maddaus in VARIETY INSIGHT
The board of the Weinstein Company voted on Friday (16th February, 2018) to fire David Glasser, the
company’s chief operating officer. Glasser was set to become CEO of the company under a new
ownership group. However, New York Attorney General Eric Schneiderman filed a suit on Sunday
alleging that Glasser had failed to protect employees from Harvey Weinstein’s pattern of sexual
harassment. In a press conference, Schneiderman made it clear that the sale would not have his
blessing if Glasser were left in charge. “The Board of The Weinstein Company has unanimously voted
to terminate David Glasser for cause,” the company said in a statement on Friday evening. The
company did not give any further explanation. A source familiar with the board’s thinking said the
firing came in response to the attorney general’s lawsuit. The board members blamed Glasser for
failing to keep them in the loop about the investigation, and felt that he was playing both sides and
angling for the top job under the new owners. The board also fired the law firm that had been
handling the investigation on the company’s behalf.

The company is running low on cash, and is thought to be desperate to keep the sale alive. Investor
Ron Burkle is part of the bid group, which is formally led by Maria Contreras-Sweet, the former head
of the Small Business Administration. Burkle is believed to be close to Glasser, so it is unclear whether
the bid group would cut ties with him as well. With the attorney general’s intervention earlier in the
week, the deal is on life support. Without it, the company likely would have to declare bankruptcy.
Getting rid of Glasser could help resolve some of the attorney general’s concerns. However,
Schneiderman has also raised a doubt as to whether the company will have sufficient funds to pay off
victims of Weinstein’s harassment.

Required:
i] In your opinion, do you think the sacking of Glasser was appropriate? Justify.

ii] Do you think resignation could be the best option to Glasser? Under what general
circumstances should a member of a board of director resign?

iii] Using the facts presented in the case above, do you agree that hostile takeover of firms could
potentially shape corporate governance mechanisms? Justify.

Question 6:

Renault Board Member Quits Ahead of CEO Succession Meeting

By Reuters | Published: Feb 12, 2018 07:47 PM

Desmarest's exit comes amid renewed tensions between Renault and the French
government, which has been pressing Ghosn to recruit a second-in-command who could
one day succeed him at the helm of the Renault-Nissan alliance.

Senior Renault board member, Thierry Desmarest, has resigned from the French carmaker, sources
told Reuters, days ahead of a meeting at which Chief Executive Carlos Ghosn is asking directors to
back his chosen successor's appointment. Desmarest's exit comes amid renewed tensions between
Renault and the French government, which has been pressing Ghosn to recruit a second-in-command
who could one day succeed him at the helm of the Renault-Nissan alliance. Former Total CEO
Desmarest, whose mandate runs until 2020, told Renault early last week that he was stepping down
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early, people familiar with the matter said. His exit closely follows that of Chief Performance Officer
Stefan Mueller, which cleared the way for Ghosn to propose his other deputy, Thierry Bollore, as chief
operating officer and heir apparent. A spokeswoman for the French oil giant, where Desmarest
remains honorary chairman, declined to comment. The company did not respond to Reuters' requests
to speak to him directly. A Renault spokesman said: "We do not comment on rumours and
speculation." A French government spokesman did not return calls seeking comment. At least two
directors - other than Desmarest - have raised concerns about the recruitment process and its
outcome, sources told Reuters. "External candidates were not so much as considered," said a person
with knowledge of the matter, even when profiles such as Toyota second-in-command Didier Leroy
were put forward by recruitment firms. Renault placed Bollore atop its shortlist at the start of the
process and blocked attempts by the external advisers to bring Mueller, a German-born BMW veteran,
into serious contention, the source said. Desmarest, 72, had in any case planned to withdraw from
the Renault board after the next shareholder meeting in June, a person close to the former oilman
told Reuters. He had served on Renault's board for a decade and chaired its strategy committee. "It
was going to happen anyway," the person said. "This is not motivated by polemics or the Ghosn
situation." But the carmaker hurriedly circulated a draft statement among board members on Friday,
attributing Desmarest's sudden exit to a discovered conflict of interest, two sources said. "He's a very
discreet man and he'll go without making a noise," said one, adding that Desmarest may attend
Thursday's meeting but abstain from voting on Bollore's nomination. "His goal is not to vote and not
to be associated with this."

Ghosn, 63, had earlier been expected to hand over the reins to a new chief executive and move to a
new role overseeing Renault, Nissan and Mitsubishi's three-way car-making alliance. But the plan
foundered on differences with the French state over the alliance's future shape and direction. Renault
currently holds 43.4 percent of Nissan, which in turn controls Mitsubishi Motors via a 34 percent
stake. Renault now plans to propose Ghosn's reappointment as CEO to the June shareholder meeting.
Both sides have been seeking to avoid a repeat of a bitter 2015 clash in which France raised its
Renault stake to swing a shareholder vote and secure double voting rights. The government had also
pushed unsuccessfully for a full Renault-Nissan merger on terms that would safeguard French
industrial interests.

Required:

i] Comment on the resignation of Thierry Desmarest as a Renault board member.

ii] Using the case above, propose smooth arrangements for resignation of a board
member.
iii] In your opinion, what could be considered as major governance challenges of the
government owned entitie?

Question 7:

Murdoch’s Sky deal must be blocked, say senior opposition figures

Rupert Murdoch’s 21st Century Fox, which owns Fox News and a Hollywood studio, made a formal
bid to take full control of Sky, owner of Sky News and pay-TV operations in the UK, Germany, Austria
and Italy, on Thursday. In fact, James Murdoch’s continued role in his father’s media empire is
sufficient reason for the proposed takeover of Sky by 21st Century Fox to be blocked, say Ed Miliband
and Vince Cable. Allegations were heard in the high court against News International in which the
role of Murdoch’s son in the alleged deletion of incriminating emails was raised in evidence, the two
men say. Miliband and Cable also point out that a 2012 Ofcom report was “withering about the
conduct of James Murdoch” when it examined the last attempted take-over of Sky, and they urge the
culture secretary, Karen Bradley, to immediately refer the issue to the watchdog again.

James, the younger son of Rupert Murdoch, stood down as chairman of BSkyB in 2012 as Ofcom
escalated its investigation into whether he was a “fit and proper person” to be in charge in the wake
of the phone hacking scandal. In a joint article published in the Observer, the former Labour leader
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and the former Liberal Democrat business secretary write: “The question as to whether 100%
ownership is right now when it was not four years ago can be answered emphatically: no. “James
Murdoch, despite what the 2012 report said, is now back as chairman of Sky and is chief executive of
21st Century Fox as it seeks to take over Sky. There are crucial – unanswered – issues around the
culture and competence of what went on at Murdoch-owned newspapers which have not been
satisfactorily resolved or answered.” They add: “The Murdochs may claim that editorial independence
could be guaranteed by ring-fencing Sky news, and impartiality protected by Ofcom, the regulator.
But the answer to this and the deeper questions at the heart of this bid depend on trust and the
conduct of the Murdoch organisation and family does not inspire trust. “If it was inappropriate for the
Murdochs to take 100% control of Sky even before the multiple convictions of their former
employees, it must be inappropriate now. “Promises that might be made to the regulators that there
will be a specified proportion of independent non-executive directors cannot overcome the reality of
total ownership and control.”

Required:

i] Describe any four (4) important governance implications which can be drawn from the
above case

ii] In the context of corporate governance, what is the implication of the phrase “Promises that
might be made to the regulators that there will be a specified proportion of independent non-
executive directors cannot overcome the reality of total ownership and control”

iii] In the context of developing countries like Tanzania, discuss four (4) major challenges
facing board of directors of the family owned businesses

Question 8:
[8 MARKS]
Tata Sons renews appeal for removal of Mistry from group companies
December 11, 2016
By Rajendra Jadhav; Additional reporting by Promit Mukherjee; Editing by Dale Hudson and David
Goodman

Tata Sons on Sunday renewed its appeal to shareholders of Tata group companies to remove Cyrus
Mistry from their boards, saying that his presence as chairman "is likely to lead to fragmentation of
the Tata Group". An October boardroom coup ousted Mistry as chairman of Tata Sons, holding
company of the $100 billion Tata empire, but he remains on the board of some group companies.
Patriarch Ratan Tata is back at the helm temporarily and a public power struggle has since ensued
between the two sides. The appeal by Tata Sons comes days ahead of key meetings at six group
companies, including Tata Motors and Tata Consultancy Services, when shareholders are expected to
vote on removing Mistry from their boards.

In a four-page letter, Tata Sons said that Mistry misled the selection committee set up in 2011 to
select a chairman of Tata Sons to succeed Ratan Tata. The letter said Mistry had made lofty
statements about his plans for Tata Group and that none of them had been implemented. Tata Sons
said at the time of appointment that Mistry agreed to distance himself from family enterprise
Shapoorji Pallonji & Co but later retracted his position. Mistry issued a statement on Sunday rejecting
the accusations, saying that new engineering and construction contracts from the Tata Group to
Shapoorji Pallonji dropped to nearly zero from a level of 11 billion rupees ($163 million) when he
assumed office. In the Tata Sons letter, the company said that Mistry has, over the past three to four
years, concentrated power and authority as chairman in all major Tata operating companies and tried
to weaken management structures in Tata companies "acting contrary to his fiduciary duties". On
Monday, Mistry defended his position to shareholders of six Tata group companies, explaining why he
should not be removed as director at their shareholder meetings. Tata Sons, in a statement on
Wednesday, said that Mistry was removed as chairman because the board of Tata Sons had lost
confidence in him and his ability to lead the group.
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After weeks of attempting to hang onto power in key Tata Group companies, Cyrus Mistry appears to
be throwing in the towel. Late today (Dec. 19, 2016), the former chairman of Tata Sons, the holding
company of the Tata Group, said that he would be resigning from the boards of a half-dozen listed
companies affiliated with the group. But he also suggested he may now take the matter to court.

“… [I]t is time to shift gears, up the momentum, and be more incisive in securing the best interests of
the Tata group, ”Mistry said in a two-page statement. “… I have decided to shift this campaign to a
larger platform and also one where the rule of law and equity is upheld.”

“… I had initially not thought that one would need to seek an external forum to adjudicate issues that
should never have arisen in the first place,” he added. The move comes at the beginning of a week
when four major group companies—Indian Hotels, Tata Steel, Tata Motors, and Tata Chemicals—will
be holding extraordinary general meetings (special sessions that include ordinary shareholders) to
seek the removal of Mistry from their respective boards.

The entire drama began after the Tata Group unceremoniously sacked Mistry as chairman of the
group on Oct. 24, without citing any reason. A few days later, Mistry, in a letter leaked to the media,
questioned the $104 billion conglomerate’s corporate governance practices and said that the group’s
net worth had eroded significantly, leading to a write-off of $18 billion. Weeks later, the Tata Group
finally issued a statement indicating that Mistry’s sacking was related to his inability to turn around
the group’s fortunes and his decisions to sell badly performing assets. Since then, both camps have
been engaged in a public airing of allegations and counter-allegations. Mistry, meanwhile, refused to
resign from his role as a director on various group companies, and remained chairman at four group
companies. They included the publicly listed firms Tata Motors, Tata Power, Tata Chemicals, and the
Indian Hotels. To remove him as chairman and director on various group companies, the Tata Group
had called for special sessions through December. Last week, the first of the lot, Tata Industries,
removed him as director, followed immediately by Tata Consultancy Services. With Mistry’s decision
to resign from six more Tata companies, both the former chairman and the Tata Group will perhaps
avoid more needless mudslinging.

But what will Mistry do next? The mystery continues.

NB: ($1 = 67.4601 Indian rupees)

Required:

i] Do you think the removal of Mistry was appropriate? Justify.

ii] Under what circumstances should board chairman be removed from an office?

iii] As a corporate governance expert, discuss four (4) lessons which can be drawn from the
boardroom drama presented in the above case