Bad Corporate Governance Case Study

Contents

1. The factors that might lead institutional investors to attempt to intervene directly in the management 2

2. Examples of bad corporate governance, the importance of sound corporate governance and recommendations for the board of RSTL to maintain a good governance practices 7

3. Weaknesses in RSTL Company’s internal control system and the implication of each weakness on the company’s success 11

4. Examples of disciplining excessive Pay and implications to encounter Mr Rob Yu high Remuneration 14

1. The factors that might lead institutional investors to attempt to intervene directly in the management

Case for institutional investors intervention Explanation Justifications and implications for RSTL

The combination of Chief executive

Examples of bad corporate governance, the importance of sound corporate governance and recommendations for the board of RSTL to maintain a good governance practices

Examples of Bad Corporate Governance Practice Consequences for RSTL Recommendation

[Leadership]

The board is not collectively responsible for the long-term success of the company. Directors act in what they consider to be the best interests of their personal bonuses, not shareholders. This is conducted by taking abuse of non-division of Chairman/ CEO responsibilities. In addition, other non-executive directors are not independent enough in term of providing entrepreneurial leadership of the company. The initial outstanding performance and increase of share price was smoothly achieved by the non-integrity and short-term self-interest of the board:

- Combined chairman/ CEO role resulted in monitoring one-self, leading to the abuse in corporate matters.

- The directorship gave a door to boardroom complicity in approaching risk assessment and leadership

- Staff figured out fraud issues and accepted personal bonus in exchange for her

One dollar in present is worth more than ones in the future. The present value of future cash inflows is brought into current earnings although there is the uncertainty in collecting cash as it is subject to ongoing market and operational risk.

This is the area of management estimates that needs the effective evaluation process. There may be the management override control problem using estimates. Future customer supply contract values should be evaluated by expert and qualified in-charge staff, reviewed and approved by higher levels. In prudent manner, the uncertainty should be partially eliminated when offer remuneration or made provision for further events.

Measures of financial performance, such as accounting-based profit or revenue, should be risk adjusted. Where discretion is applied as part of the process, companies must be able to provide details to the regulator. RSTL inherently had risks that would threaten the business model (overly complicated structure, network of international branches…), future performance (uncertain customer contracts, rapid industry development…), solvency or liquidity. Financial results should be prepared in term of prudence basis and risk adjusted to indicate more reliable