Reference no: EM132598860

Question - Stress3 Ltd is listed on the stock exchange of Mauritius. The company manufactures a wide range of pharmaceutical products including modern drugs used in preventing and treating cancer, AIDS and similar diseases. Stress3 Ltd has three factories where drugs are produced and one research and development facility.

The board of directors comprises the chairman/CEO, three executive and two non-executive directors (NEDs). Separate audit and remuneration committees are maintained, although the chairman has a seat on both of those committees. The NEDs are appointed for two and usually three 4-year terms of office before being required to resign. The internal auditor currently reports to the board (rather than the financial accountant) on a monthly basis, with internal audit reports normally being actioned by the board.

There have recently been problems with the development of a new research and development facility. On a number of occasions the project has fallen behind schedule and the costs have been much greater than expected. Because of developments that have taken place elsewhere in the pharmaceuticals industry while the project was being completed, concern has been expressed that the facility cannot now represent value for money. A couple of large institutional investors have raised concerns about this, and have indicated their intention to raise the issue at the annual general meeting and possibly vote against the accounts.

Throughout the project one of the non-executive directors criticised the way the project had been approved and monitored. She claimed that the board had been led by the senior managers in the Research and Development department and had acted as no more than a rubber stamp for what they wanted to do.

She is threatening to resign at the annual general meeting on the grounds that the board is failing to function effectively and she does not wish to be held responsible for decisions on which she has had no effective input. As a result, the other non-executive director has also raised questions about the way the board is functioning.

Requirements -

(a) Explain the main responsibilities of the board, identifying the ways in which Stress3 Ltd's board appears to have failed to fulfil its responsibilities.

(b) Evaluate the structures for corporate governance within Stress3 Ltd, recommending any amendments you consider necessary to those structures.