Corporate Governance

Case study

Merk astra is a large European pharmaceutical business.itwas formed from the merger of two smaller pharmaceutical companies about 40 years ago,one based in Germany and the other in the uk.the business operates through complex group structure. There are two main operational companies merk astra pharmaceutical and merk astra zenca. These are owned jointly by astra zenca which is registered in the uk and merk astra zeca’s shares Deutsche Borshe.Since they both they both enjoy the same dividend policy there is no significance difference in share price. Research activities are managed out of the London offices and marketing activities are managed out of the Frankfurt offices.This complex ownership arrangement is reflected in an equally complex corporate governance structure. There is a unitary board at astra zenca(the UK company) which is made up of four full time executive directors and four non-Executive directors (including the non-executive chairman). At merk (the German company) there are two tier boards. The over sight board is composed entirely of non-executive directors who include employee representatives and representative of other stakeholder groups. The Merk CEO attends the oversight board meeting by invitation but is not permitted to vote. The CEO chairs the executive board.One of the most important committees operating within the organisation is the managing directors committee which is the forum in which the CEOs of the two non-operational quoted companies. The CEOs of the main operational companies and the CEOs of two or three of the operational subsidiaries meet. The recently appointed chairman of this committee is sir Edward evans. His previous role was as CEO of the uk operations (MAZ).The MD’s committee is considering how to respond to a problem with a group of drugs which Astra zenca are pioneering.MAP has been developing new family of drugs, polychromatic antibiotics which the directors hope will be a big step in the control of infections, in particular avoiding the problems of resistance associated with traditional antibiotics. One particular new drug amachromycin has been undergoing its phase 1 clinical trials. This is the stage where the drug is tested on animals and before it is tested on real patients. The clinical trials have had to be suspended however. Unexpectedly two of the young man taking part in the drug trial became seriously unwell. On news of this the share price for MAP fell on both stock exchanges.The MD’s committee is considering the implications of this. There are also two further drugs from the same family Hatachromycin which is about to start being trialled on real patients and stuchromycin which has already been licensed in EU and USA and which is being marketed as the best treatment for the particularly virulent resistant infection(PVRI). The use of stuchromycin is expected to cause one untimely death from.Adverse relation for every 1,000 lives saved from successfully treating PVRI. Stuchromycin has yet to receive clearance in the UK from the body that has the final say on which drugs are used within the national hospitals based on cost effectiveness.The clinical trials are the responsibility if new CEO at MAP, james Kerry and marketing of the newly licensed drug is the responsibility of the CEO at the German company MAZ, Lukas mann. They are both members of the MD’s committee. However the two CEOs believe that Sir Edward Evans should lead action to tackle the problems, since the chairs the MD’s committee and put all the policies for drug trials in place while he was CEO of the UK operation.

Questions1. By referring to the case scenario, assess critically how accountability would be affected by complex organisational structures.(20)2. Evaluate unitary and two tier board in context corporate governance.(15)3. Write a report to sir Edward evans to send to the board of the holding companies, merk astra and astra zenca. The report should include.I. An explanation to the board regarding the uk combine code of conduct and the principle behind the code which will affect the company.(25)II. A statement explaining what is meant by responsibility.(10)III. Identification of three stakeholders affected by the drug trial.(15)IV. Assessment of MAP’s responsibility towards those stakeholders.(15)

LEARNING OUTCOME: CORPORATE GOVERNANCE

Corporate Governance is the system by which businesses are directed and controlled through the distribution of rights and responsibilities among different participants in the corporation (the board, managers, shareholders, and other stakeholders), and through rules and procedures for making decisions on corporate affairs. Adam Smith noted that managing other people’s money creates risks and conflicts arising from the separation of ownership and control. Corporate governance is designed to mitigate those risks and improve transparent and efficient performance of businesses. Yet businesses do not operate in a vacuum. That is why it is important that corporate governance also reflects the institutional environment external to firms. Objectives 1. Understand why corporate governance is important to development. 2. What corporate governance is and how it can improve the overall business environment of a

country. 3. Identify the different elements of corporate governance. 4. Explore the internal and external institutional environments of firms. 5. Identify the values that underpin good corporate governance.

FINANCIAL ACCOUNTING AND MANAGEMENT

Learning Outcome 1The learner will: Understand the framework of financial accounting.

Learning Outcome 2The learner will: Know how to prepare and present the financial statements of companies in accordance with internationally generally accepted accounting practice (IGAAP) under International Financial Reporting Standards.

Learning Outcome 3The learner will: Know how to prepare Statements of Comprehensive Income, Statements of Financial Position, Statement of Changes in Equity, and Statements of CashFlows.

Learning Outcome 4The learner will: Know how to analyse and interpret financial statements for a range of users.

Learning Outcome 5The learner will: Know how to prepare and present consolidated financial statements inaccordance with IGAAP.

Learning Outcome 6The learner will: Understand the capital structure and gearing of a business.

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