Skip to content
Home » Accounting Class Homework Help » CORPORATE GOVERNANCE B2 Corporate Governance Steve..

CORPORATE GOVERNANCE B2 Corporate Governance Steve..


B2     Corporate Governance

Steve Boucher, the managing director of Milano Limited, a large textile manufacturer plan to float the company (apply for a listing) on the New Zealand Exchange (NZX). He has consulted your firm on the company’s corporate governance practices and has completed your standard corporate governance questionnaire. An extract from the completed questionnaire is shown below:

Question Response
1.   Are the positions of Chief Executive Officer and Chairperson of the Board of Directors held by different people? Not applicable. We do not consider it necessary to have a “Chairperson of the Board”. Directors meeting are controlled by me.
2.   Number of directors:


2.1 Executive directors?

2.2 Non-executive directors?

2.3 Independent non-executive directors?


There are seven executive directors.

There are two non-executive directors.

None. We don’t consider that there is such a thing as an independent non-executive director. If you are a director you must be totally committed to the company, you can’t be “independent”.


Required:  Discuss how you would respond to the managing director, based on his responses in the questionnaire above.  (5 marks)


(Hint: You should assess and analyse the appropriateness of the current governance practices in Milano Limited, referring to the relevant guidance on the issue) 


Internal audit offers assurance by evaluating and reporting on the efficacy of governance, risk management, and control systems intended to assist the company in achieving its strategic, operational, financial, and compliance goals. By separating them, a corporation may accurately separate management authority from board authority and allow the chairperson and CEO to carry out their responsibilities without fear that one position’s interests would adversely affect the other.


Steve Boucher, managing director of Milano Limited, asserts that the company does not regard a board chairman as necessary as he conducts all board meetings personally. This response suggests that he makes all decisions completely, creating a conflict of interest in the company’s decision-making.


Referencing the number of executive directors to non-executive directors within the company is a concern as there are seven elected executive directors and only two non-executive directors. Non-executive directors’ primary responsibility is to give independent judgement, outside experience, and neutrality on all topics brought before the board. There is no minimum need for the number of independent/non-executive directors on a board. Nonetheless, the ASX Guidelines urge that organisations have the most independent/non-executive members on their board of directors.


B3     Corporate Governance

The following article was published on the website regarding the Lombard Finance and Investment Directors: 

Closing arguments to start in Lombard bosses’ trial 




The criminal trial of four Lombard Finance and Investment directors, including two former Cabinet ministers, enters its final phase tomorrow with closing arguments in the High Court at Wellington. 

Former justice ministers Sir Douglas Graham and Bill Jeffries, managing director Michael Reeves and fellow director Lawrence Bryant are accused of making false statements in two investment documents and three related advertisements between December 24, 2007, and April 8, 2008. 


All have pleaded not guilty to the charges, which carry a maximum penalty of five years’ imprisonment or fines of up to $300,000. 


Lombard Finance was put into receivership in April 2008, owing $125 million to 4400 investors. Secured creditors are expected to be repaid less than 24 cents in the dollar.


Graham, who was chairman, has told the court he had personally lost retirement savings of $12,000 he had reinvested in secured debentures in October 2007 and could “ill afford to lose”. He was also a small shareholder in the then listed Lombard Group. 

The trial began before Justice Robert Dobson on October 18 before adjourning for the holiday period. The Crown alleges the men had signed off on investment documents, seeking money from the public, and related advertising material which failed to disclose the rapidly deteriorating financial position of Lombard Finance. 


As a result, investors were not fully informed when they decided to put the money with Lombard Finance. The documents understated the value of Lombard Finance’s loan book, the troubled state of its lending and its dwindling cashflows. 

Lombard Finance had also failed to adhere to its lending policies, resulting in investors being exposed to much greater risk than they had been led to believe, the Crown alleges. 


Defence lawyers said there was no allegation of any deliberate attempt to mislead investors by the accused. 

The Crown’s case was a “post mortem” of a failed company caught up in the “tsunami” at the start of the global financial crisis, which engulfed the company over 101 days. 


Graham said the board left the running of the loan book to senior management. “We were on the bridge charting a course through troubled waters – not in the engine room looking at the dials.” 


© Fairfax NZ News



(a)         Describe five (5) themes or threats common to most codes or laws giving guidance on Corporate Governance that were not complied with in the Lombard Finance and Investment case, which is apparent from the above article.  (5 marks)

(b)         Suggest the appropriate procedures that should have been adopted by Lombard Finance and Investment to achieve compliance with the themes or threats identified in (a) above.    (5 marks)


B4     Audit Committee


Describe who should be members of an audit committee according to the Financial Markets Authority (FMA) guidelines?     (5 marks)