GOVERNANCE AND CONTROL 2A AO1 SUGGESTED SOLUTION

MODULE CODE: GAC02A2

QUESTION 1 – REQUIRED (20 MARKS)

(a) Identify and explain the Companies’ Act contraventions from the 20
above scenario and provide recommendations for each
contravention.
Use the format below
Contravention Recommendation
Conclusion are not required for each matter identified.
 Marks can still be awarded even if not in the correct column. The issue needs to
be explained in terms of the Companies Act.
 A student can identify the issue, and apply the incorrect legislation, the issue can
still be marked CORRECTLY.
 Even if a student did not use the Companies name, or complete application,
mark can still be awarded.
 Eg: No Audit required (The mark can still be awarded here). We just need to
ensure that the issue was identified.
 When marking a question please apply discretion.
Contraventions Recommendations
The board held in total three board 1 The board should convene a 1
meetings in the year minimum of four board meetings a
year per the Companies Act.
The mark is awarded for the
identification of 4 times
The board meeting was called upon 1 A board meeting can be called by a 1
the request of 1 director director (at any point of time)
1 director out of 15 directors is less The meeting should be requested
1 by at least 25% of the directors. 1
than 25% (6,67%)
Therefore at least 4 directors
Even if student indicated minimum
directors not identified, the principle
is still correct. Eg: only 1 director
called a the meeting, the mark is
awarded on the identification of the 1.
Mr. Peter has a personal financial 1 If a director has a personal financial
interest in a matter to be discussed in interest in a matter to be considered
the meeting, with regards to the at the meeting that director must:
recycling contract.
• Must disclose interest &
This is evidenced by his 10% 1 nature; 1
shareholding in Yougo.
• Must disclose any material 1
Mr Peters partook in the meeting information relating thereto;
1
• Must leave meeting after
making disclosure; 1

• May not take part in the vote

on the matter; 1
• Forms part of quorum to
consider if sufficient directors
are present; 1

• Not considered present to

consider if resolution has 1
sufficient support to be
adopted.
Board meeting minutes were not 1 The company secretary is required 1
recorded, as requested by the chair. in terms of the Companies Act to
record the minutes.
The board meeting was called with 1 The board must call a shareholders 1
less then the required number the Co meeting if so requested by the
Act holders of at least 10% of the voting
rights (the MOI may specify a lower
%).
The board called a shareholders
meeting upon the request of Ms. De 1
Villiers who has only 7% voting
rights/has less than 10% voting
rights.
(Even if a student just indicated that
less then 10% called the SH meeting,
mark can still be awarded, the
identification of the issue is correct)
The notice of meeting was given five 1 Notice of shareholders meeting 1
days before the meeting. must be given at least 15 business
 days before the meeting for public
companies.
The meeting convened without 1 A meeting shall not convene unless 1
sufficient people to exercise in a quorum is present.
aggregate 25% of voting rights.
A quorum is:
1
Ms. De Villiers and Mr Naidoo can in
 Sufficient persons to
aggregate exercise only 22% (7% + 1
exercise in aggregate 25% of
15%).
all the voting rights (MOI can
(Even if a student just indicated that specify lower %)
less then 25% convened, mark will
be awarded)  If the company has more 2
1
shareholders, at least 3
shareholders.
Go Green does not require an audit. 1 Go Green is currently listed, so 1
despite the PI score is required to
get audited.

Give a mark if student is able to

conclude that audit required (the
principle is marked)
Max marks for the Question is 20 Marks

SUGGESTED SOLUTION 40 MARKS

QUESTION 2:
(a) Explain the two sides of the ethical dilemma faced by Mr. Khumalo.

On the one side, Max Khumalo is an employee of SA PIPING and required to

1
uphold their values of excellence, transparency & trust, as a team player.
On the other side, Max Khumalo can benefit from the extra cut from FINDERS to
1
be more financially secure.
Available Marks 2
Maximum Marks 2
(b) Through the application of the Quick Test, advise Mr. Khumalo on the ethicality of the
agreement.
1) Is it legal?
Explain: If something is against the law or the organizational policies, there is a good a
chance that it is unethical.
Apply: Khumalo was not acting in the best interest of the business, or in line with 1
its values. It will be a transgression of policies.
2) Will it look good in a newspaper?
Explain: Would I be happy if I read about my decision in a newspaper?
Apply: Max Khumalo would not be happy if his transgression was all over the 1
news. It would put him in a bad light.
<Any other valid and logical argument by students welcomed>
3) Is it consistent with the organisation’s values?
Explain: If I make this decision, am I honouring what the organization expect of
me in terms of its values?
Apply: The values of SA PIPING includes excellence, transparency, and trust. 1
<Any other valid and logical argument by students welcomed>

4) Is it fair to all?
Explain: Consider the “other”, and have empathy for them. If I make this decision,
would it be equally fair to all stakeholders?
Apply: If Mr Khumalo makes this decision it would not be fair to SA PIPING as 1
they have to pay a margin to suppliers internally sourced.
<Any other valid and logical argument by students welcomed>

5) If I do it, will it feel good?

Explain: This is a personal question calling for one’s own conscience for
guidance.
The answer to all 5 questions must be yes for it to be considered ethical.
Based on the Quick Test, the only suitable advice is that it is unethical to enter 1P
into the agreement.
Available Marks 5
Maximum Marks 6
(c) With reference to the principles contained in the Ethics Triangle, discuss, and conclude
on the ethicality of the agreement between FINDERS and Mr. Khumalo. Discuss from
the vantage point of Mr.Khumalo.
The ethics triangle consists of good, self & other.
SELF (Mr. Khumalo)
Positive consequences for Max Khumalo
Max Khumalo gets a cut of all the SA PIPING income on FINDERS’ books. 1
Negative consequences for Max Khumalo
The deceit might take its toll on Khumalo’s mental wellness. 1
Breach of employment contract and values could lead to a dismissal and litigation
1
in future.

OTHERS
SA PIPING
Positive consequences
None noted.
Negative consequences
Financial losses through overpayment to FINDERS. 1

Financial losses through lacking motivation to bargain for better prices. 1

Negative impact on trust culture in SA PIPING. 1

Weakening of direct relationships with suppliers. 1

FINDERS
Positive consequences
Higher payment from SA PIPING. 1

Negative consequences
Damage to reputation in future. 1

Breach in agreement could lead to litigation in future. 1

SUPPLIERS
Positive consequences
None noted.
Negative consequences
Any other valid consideration. 1
Conclusion: The agreement offered by FINDERS to Mar. Khumalo does not
appear to be ethical/does appear to be ethical <must align with argument> 1
Available Marks 12
Maximum Marks 10
(d) List two ways in which SA PIPING can manage the risk of the unethical behaviour.

Consider whether policies are in place. 1

Develop Codes of conduct. 1
Ensure that there is an ethical culture within the organisation. 1
Segregation of duties/oversight function/another team member in creditors
1
department.
Tone at the top – the management should be an example of good ethical
1
behaviour.
Anonymous helpline where unethical behaviour can be reported (whistleblowing). 1
Available Marks 6
Maximum Marks 2
(e) Discuss and conclude whether the governing body is in line with the KingIV™ principles
of corporate governance.
King IV recommends that the governing body considers a balance of skills,
diversity, experience, independence and knowledge needed to discharge their
role and responsibilities.
The candidates show a wide range of expertise and experience that would be
suited to the company. Diversity also seems to have been considered.
King IV recommends that the governing body comprise of a balance of executive
and non-executive members, with the majority members should be non-
executive.
The majority of non-executive members should be independent.
The CEO should be included in the governing body as per King IV
1
recommendations and it seems that the CEO is not on the governing body of SA
PIPING.
No chairperson indicated and King IV requires a chair and the chair should be a
1
non-executive independent.
Executive vs Non-Executive 1
Tarryn Proctor is not involved in the day to day running of SA PIPING’s business
as she is employed as the marketing manager of FamousBrands. 1
She would therefore be a non-executive member.
Independence
1
Mrs Proctor is the daughter of Mr Antonio Proctor, who is a material shareholder
of SA PIPING.
1

Executive vs Non-Executive
1
Asheel Singh is not involved in the day to day running of SA PIPING as he is a
full-time sustainability consultant at GreenEarth Consultants.
1
He would therefore be a non-executive member.
Independence
Mr Singh’s independence does not seem to be a problem. 1
He is therefore seen as independent.
Executive vs Non-Executive
Nondumiso Madondo spends all her time building her construction business so 1
is not involved in the day to day running of SA PIPING.
Independence
? KNSTRKT is a major customer of SA PIPING, and therefore Nondumiso is not
independent. 1
There seems to be no executive directors on the BOD. 1
There should be at least two executive directors. One must be the CEO, and
the other may be the CFO, or another executive director as is appropriate for
the organisation. 1
There should be Set targets for race and gender representation in its membership. 1
Currently there are two ladies, one male, and the race is not known. 1
Summary & Conclusion
With three non-executives of which only one is independent - the criteria from
King IV is not met. 2
The committee is not in line with the King IV Code of Corporate Governance.

Available Marks 17
Maximum Marks 15
 (f) An internal review has revealed that no succession planning has been done at SA
PIPING. Identify who needs to take responsibility for that function.
The nomination committee is responsible for succession planning 1
BUT the governing body must take ultimate responsibility 2
Available Marks 3
Maximum Marks 3

Presentation and Interpretation = 2 MARKS

(P&I does not need to be included by the marker)