EXAMINATION PAPER

MAY/JUNE 2022

MODULE CORPORATE GOVERNANCE DATE 26 MAY 2022

MODULE CODE CGE101 TIME: 09H00

Assessor Mr J C Benade DURATION THREE (3) HOURS

Moderator Dr L Naudé

MODULE-SPECIFIC INSTRUCTIONS
1. Answer all the questions unless otherwise instructed.
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examination paper.
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examination paper.
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CGE101
THIS EXAMINATION PAPER CONSISTS OF FIVE PAGES CORPORATE GOVERNANCE
INCLUDING THIS COVER PAGE (THIS IS PAGE 1 OF 5).
CGE 101 – CORPORATE GOVERNANCE
EXAMINATION PAPER – MAY/JUNE 2022

Question 1 [20]
In the Old Mutual 2020 Corporate Governance Report, (p.13),1 the following four
responsibilities of the Board have been highlighted:
• Set and steer the strategic direction and culture of the Group
• Ensure there is an effective and competent management team in place, as well
as adequate succession planning for the team
• Review operational performance and ensure accountability
• Facilitate an effective governance environment and risk management
framework
Choose any two (2) of the responsibilities listed above and (for ten marks each)
comprehensively explain what measures the Board of a company can implement to
ensure the successful execution of that particular responsibility /objective.

Question 2 [20]
The Companies Act, King IV and the JSE Regulations all comment either directly or
indirectly on the composition of the Board. In their 2020 Corporate Governance Report,
Old Mutual has produced the following diagram to reflect and explain the composition
of the Board.

2.1 Principle 7 of King IV reads as follows: “The governing body should

compromise the appropriate balance of knowledge, skills, experience, diversity
and independence for it to discharge its role and responsibilities objectively and
effectively.” Given the information provided in the diagram, do you think that Old
Mutual is doing justice to this principle? Fully motivate your answer. (10)

https://www.oldmutual.com/v3/assets/blt566c98aeecc1c18b/blt7fe02106b74e588a/607d697a13f73c4f797
2ea51/2020_Corporate_Governance_Report.pdf
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2.2 Who (which committee of the Board) would typically be responsible for
monitoring the composition of the Board and facilitating the filling of any
potential vacancies? Also discuss the process that will be followed in filling such
a vacancy. (10)

Question 3 [20]
In 2020 the Old Mutual Board was made up of the following sub-committees.
• Audit
• Corporate Governance and Nominations
• Related Party Transaction
• Remuneration
• Responsible Business
• Risk
• Technology and Platforms
3.1 Briefly discuss the composition of the Remuneration Committee and explain
why King IV has made specific recommendations in this regard. (5)
3.2 Discuss the objectives, role and function of the remuneration committee in a
company such as Old Mutual. (10)
3.3 In accordance with section 72(4) of the Companies Act 71 of 2008, a company
such as Old Mutual is required to establish a Social Ethics Committee. Given
the committees listed above, do you think Old Mutual are compliant with the
legislative requirement. Motivate your answer. (5)

Question 4 [20]
In accordance with the OECD Principles for Corporate Governance, (principle II H),
“Shareholders should have the right to be informed of and to participate in decisions
concerning fundamental corporate changes.” 2
Write an essay in which you discuss the “rights” of shareholders as referred to in the
above statement. Remember that in the South African context, these “rights” are
regulated by the Companies Act, King IV and the JSE rules. In your answer, you
should comment on where and how shareholders are to be engaged. You should also
distinguish between those matters where shareholders are required to make decisions
and those on which they just need to be informed.

2
Wiese T. (2017) Corporate Governance in South Africa: With International Comparisons (2 nd Edition).
Pg. 200.
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EXAMINATION PAPER – MAY/JUNE 2022

Question 5 [20]
CASE STUDY
When a company falls out with its CEO:
lessons from South Africa’s Old Mutual
Introduction
The dismissal of a chief executive is seldom given such publicity as has happened in
the case of Old Mutual and their former CEO Peter Moyo. The legal battle that followed
his dismissal from Old Mutual, the South African-based investment, savings and
insurance group, has dominated news headlines in the country for several months.
After Mr Moyo’s initial dismissed by the Board of Old Mutual he was reinstated. Old
Mutual took the matter on review and in the higher court, Mr Moyo’s dismissal was
upheld.
The drama has involved public attacks, numerous court cases and claims and counter
claims from both parties. It is seldom that such extensive publicity is given to the
dismissal of a chief executive of a listed company and to the inner conflicts in a
company and a Board. These matters are usually resolved internally.
How the saga unfolded
In June 2019, Old Mutual dismissed Mr Moyo as its CEO because of a breakdown of
trust and conflict of business interest. The action was taken because of questions
around a dividend payment by an investment firm NMT Capital. This company was co-
founded and partly owned by Mr Moyo.
In 2018, Mr Moyo chaired a meeting of NMT where it was decided to declare a R105m
ordinary dividend, and in the process, he allegedly paid himself a dividend, of R30.6m.
(This was based on his shareholding in NMT Capital). This decision was taken in spite
of the fact that there was an agreement in terms of which Old Mutual (who owned
preference shares in NMI Capital) would qualify for a preferential dividend. This means
that the preferential dividend should have been paid before a decision could have been
made on an ordinary dividend.
As a result of the dividend payout, Mr Moyo and his partners shared R84m in
dividends, while they failed to pay the dividends on the preferential shares. The
preferential shares that Old Mutual owned would have qualified them for preferential
dividends, of approximately R65.4m which was
now owing to Old Mutual.
Old Mutual argued that this, was a violation of
the shareholders’ agreement, the preference
share subscription agreement and Moyo’s
employment contract. It was also argued that Mr
Moyo did not fulfill his fiduciary duty towards Old
Mutual where he served as an Executive
Director on the Board. The Old Mutual’s board
thereafter engaged Mr Moyo for several months
about the matter without success and
subsequently decided to dismiss him.
A month later a judge ordered Moyo to be
temporarily reinstated after it was found that the
process followed might have had some
procedural flaws.

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EXAMINATION PAPER – MAY/JUNE 2022

Old Mutual however refused to allow him access to his office pending its appeal of this
decision.
In the aftermath of Moyo’s dismissal and the subsequent challenge in the court, Old
Mutual’s share price took a hammering. As a result of the negative publicity, some
investors lost their confidence in the Old Mutual Board and this reflected in the share
price which dropped by as much as 9,3% during this period.
Mr Moyo then launched an application to hold the Old Mutual board in contempt of
court as they did not want to allow him back into office.
Early 2020, a full bench of three judges held that Mr Moyo had been properly
dismissed and that Old Mutual, not only did not have to reinstate him, but could
proceed with their plan to appoint a new CEO.
What does the future hold?
This ruling however was not the end of this saga. Mr Moyo continued to argue for his
reinstatement, and he lodged an appeal of the judgment. He is also continuing with an
application for contractual and reputational damages, which eventually culminated in a
claim for R250m in compensation. Later in 2020, the Court ruled that they could not
grant him his claim and the matter was scrapped from the roll.
Mr. Moyo, nevertheless, decided to proceed with two other applications: the first was a
contempt of court application as he was not allowed back into his job despite a court
ordering his reinstatement. In his second application he approached the Courts to
declare the entire Old Mutual board delinquent. This matter has not yet been heard by
the Courts.
What should we learn from these events?
The events at Old Mutual highlights the importance of good corporate governance and
how a lack of governance could negatively impact on the wellbeing of a business and
all its stakeholders. Several lessons can probably be drawn from it.
Source: Adapted from an article by Prof Rehana Cassim of UNISA in the Sunday Times on 25
January 2020 3

Answer the following questions:

5.1 What according to you, was the core aspect that led to the dismissal of Mr Moyo?
(2)
5.2 Do you believe that there was a valid reason for Mr Moyo’s dismissal? Fully
motivate your answer. (4)
5.3 Identify two of the King IV principles that were compromised (not adhered to) and
indicate why you believe they were compromised. (4)
5.4 Corporate Governance failures often have a negative impact on the stakeholders
of a company. Identify three stakeholder groups that might have been impacted
on negatively and indicate how their interests were compromised. (6)
5.5 Do you think Mr Moyo’s application to have the board members declared
delinquent will succeed? Fully motivate your answer. (4)

EXAMINATION TOTAL: [100]

3
https://theconversation.com/when-a-company-falls-out-with-its-ceo-lessons-from-
south-africas-old-mutual-130135. Published: January 24, 2020 12.01pm SAST

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