Corporate governance

A) EXPLAIN WAYS IN WHICH A COMPANY DIRECTOR CAN LEAVE THE

SERVICE OF A BOARD

According to Davies (2000) the most obvious way to make the board accountable is that
shareholders should have removal rights to disapprove directors who do not perform to
expectations. However, there are other ways a director can leave the service of the board. The
following are the ways in which a company director can leave the service of a board.

Voluntary resignation

This is when a director makes an individual decision to voluntary resign from his or her post.
Voluntary resignation may be due to individual choice or can be to avoid dismissal
proceedings. For example, the commissioners of the Zimbabwe Anti-Corruption voluntarily
resigned.

Involuntary resignation

This is when a director is forced to resign maybe due to poor performance, conflict of
interest.

Removal by resolution of shareholders

A board according to Davies (2000) may have the right to appoint or to remove directors.
Hence, if there are serious cases of incompetence such as shown by Mr Muchechetere, and if
shareholders are not happy, they can pass a resolution through vote to remove a director.
However, the reason for dismissal should not violate legal and contractual agreements.

Cessation of the office under terms of the company constitution

According to Davies (2006) a company constitution may have a provision that a director will
cease to hold that position in any number of specified circumstances. Such circumstances
may include;
a) if a director becomes bankrupt

b) if the director fails to keep financial records

c) if the director is suffering from mental disorder

In addition, the company constitution may have term limits. Once a director reaches the term
limit, he or she cease to be a director.

Removal by court or other Authority

When a director is unfit or failed to perform his or her statutory duties and responsibilities
can be disqualified by the court or other authority. For example, the Ministry of finance
dissolved the Zimbabwe Revenue Authority Board.

Discuss a leave of absence

B) DISCUSS THE STATEMENT THAT ‘IT IS DIFFICULT TO REMOVE A SERVING

CHIEF EXECUTIVE FROM A BOARD’

Replacing a CEO is time consuming

The process of finding a new CEO is difficult and time consuming as CEOs are not readily
available. The ones that the business would like to hire might be contracted to other
organisations so the process of luring them to our business might be time consuming

Process of Firing & Replacing a CEO is Expensive

The process of dismissing a serving CEO may attract large termination benefits. Hence, one
can argue that it is a difficult process to remove a serving CEO from a board. In some cases,
it is difficult to remove a serving Chief Executive Officer (CEO) because it is associated with
high costs to hire a new one. More so, there is no guarantee that the new CEO would perform
better than the previous one.

Reaction from key stakeholders

It is difficult to remove the CEO from the board as there are concerns about how key
stakeholders such a major clients or financiers may react when the CEO is dismissed from the
board. In additional, this may cause anxiety to employees in the organisation and especially
the directors may lose focus and commitment.

Contractual agreements

The reason for dismissal of a serving CEO should not violate legal and contractual
agreements. When a board hires a CEO, they enter into contractual agreements and
depending on the terms of the contract the board cannot just dismiss a serving CEO without
following proper dismissal procedures. In some cases, because of these contractual
agreements, serving CEO end up being offered huge termination payments. Therefore, in
order to avoid huge termination costs and legal actions a board may not dismiss a serving
CEO which support the assertion that it is a difficult process to remove a serving CEO from a
board.

Disrupts the operation of the organisation

Dismissal of the serving CEO may disrupt the operation of the organisation. This can be
shown in the case study when Mr Muchechetere spent two long periods of time travelling on
company business, the less experienced directors struggled to implement strategy. Mr
Muchechetere was just away on company business hence in the case that he was dismissed
this might have disrupted the operations of the organisation.

In the case study the CEO proved beyond reasonable doubt that he was incapable of his job.
Dead BC made a lot of strategic errors, resulting in the CEO having too much power and not
being accountable to the board. The CEO proposed his own remuneration, awarded himself a
large package, and this was a dismissible offence
Therefore, considering the issues raised from above discussion it can be noted that it is
difficult to dismiss a serving CEO from a board, even though a board can dismiss a CEO the
reason for dismissal should not violate legal and contractual agreements.

C) ASSESS, IN THE CONTEXT OF THE CASE, THE IMPORTANCE OF

REMUNERATION COMMITTEE

1) To make recommendations to the Board on the Company's policy and structure for all
directors’ and senior management remuneration and on the establishment of a formal and
transparent procedure for developing a remuneration policy. A formal and transparent
remuneration policy and structure could have avoided Mr. Muchechetere’s package to be
poorly designed.

2) To review and approve the management’s remuneration proposals with reference to the
Board’s corporate goals and objectives. The self-made and undebated remuneration structure
from Mr. Muchechetere might not be in line with company goals and objectives as
shareholders are complaining that it is too much.

3) To make recommendations to the Board on the remuneration packages of all executive

directors and senior management, including fringe benefits, pension rights and compensation
payments.

4) To review and approve the compensation payable to executive directors and senior
management in connection with any loss or termination of their office or appointment to
ensure that such compensation is determined in accordance with relevant contractual terms
and that such compensation is otherwise fair and not excessive for the Company.

5) To ensure that no director or any of his or her associates is involved in deciding his or her
own remuneration. This is important in safeguarding director’s fiduciary duties, duty of care
and fair dealings, oversight duties without conflict of interest. In the case the remuneration
committee was supposed to consult the Chairman and/or the Chief Executive Officer about
their remuneration proposals for other executive directors. The Remuneration Committee
should have access to independent professional advice if necessary;

6) To consider salaries paid by comparable companies, time commitment, responsibilities and

employment conditions in Dead BC.

D) CRITICISE THE STRUCTURE OF THE REWARD PACKAGE THAT MR

MUCHECHETERE AWARDED HIMSELF

ETHICS AND REWARD SCHEMES

In recent decades there has been a move away from fixed remuneration systems towards
reward systems where at least part of an employee’s rewards is based on performance of the
individual and the business as a whole. Some writers claim that this is unethical for two
reasons. Firstly, such systems tend to place increased business risk onto employees.
Secondly, such systems undermine collective bargaining systems, and reduce the power of
unions. This leads to a situation where employees as a collective have less bargaining power.
The size of total remunerations paid to directors of large public companies has also become a
hot political issue, with a perception that the gap between top earners, and average earners is
becoming larger. The complains from stakeholders that the remuneration Mr. Muchechetere
awarded himself is too high may be because of the large gap between the directors and other
employees.

COMPLYING WITH CORPORATE GOVERNANCE BEST

PRACTICES
Rewards should comply with legal regulations. Typically, employment laws include areas
such as minimum pay, and equal pay legislation to ensure that no groups are prejudiced
against. Muchechetere’s package structure was not in compliance with corporate governance
procedures which state that the remuneration committee should be the responsible for
determining CEOs package.
PRINCIPLE AGENT RELATIONSHIP
It is an obvious fact that there is an inherent conflict of interest in the relationship between
employer and employee. The employee’s rewards represent a cost to the employer, which the
employer wants to minimise. Clearly whatever reward scheme is in place, it must be
affordable to the employer. Mr. Muchechetere’s reward structure which he has given himself
is unfordable for the company as the company is going through tough times and many
stakeholders feel is too high.

ECONOMIC CONSIDERATIONS
According to Standard economic theory executive rewards should be linked with company
performance, firm size and company capitalization. Mr. Muchechetere’s reward structure is
not in line with these aspects as he massively increased his salary and bought an excessively
expensive car due to greed. He also sold all his shares in