【正确答案】Family and listed companies A family business, when incorporated as a company, is an example of a private limited company. This means that the shares are privately held and are not available for members of the investing public to buy and sell. This is in contrast to a public company, which is listed on a stock exchange and in which members of the public, including private and institutional shareholders, can purchase or sell shares. Being a public listed or public limited company carries a number of requirements,imposed either by statute or the stock exchange, which do not apply to private companies. These requirements include compliance with a number of corporate governance provisions which include the adoption of certain governance structures,adherence with internal control and internal audit standards, and the external reporting of some types of information. A private limited company, in contrast, must comply with company law and tax regulations, but is not subject to listing rules. Mr Mara’s behaviour was highly unethical and also illegal, given the regulatory regime controlling surgical supplies in the country in which he was based. His abuse of his office as CEO of Lysus was made possible by a number of failures, linked in part to the nature and culture of the company. The first such factor was the ‘tight-knit’ family culture which enabled the decision to be made and then go unchallenged among the senior management including his wife, brother and Amy Tsang. The unwillingness to appoint from outside meant that senior members of the company became familiar with Mr Mara’s management style and may, over time, have come to consider his behaviour as ‘normal’. The fact that Mr Mara was such a domineering figure may have become accepted rather than challenged by other directors, partly because of family ties and their prior knowledge of his character and management style. The fact that the company was family-dominated may have made it difficult for others to confront Mr Mara about his style as such an approach may have negatively affected family relationships. Being a family or ‘insider’ dominated business meant that the company did not have any external shareholders. This means that there was no need to account to public shareholders for either the performance of the company or its postures on such issues as ethics. External scrutiny of board performance was not present and Mr Mara was therefore not subject to questioning from anybody outside of the company who might have had a different view on his management than the other members of the company. Because it was not a listed company, there was no regulatory necessity for Lysus to employ governance structures and systems capable of detecting and challenging his irregular behaviour. Had Lysus had, for example, an internal control system which included a control over inbound materials or product design, the replacement of the surgical-grade material with industrial-grade would have been detected and an alert raised as it would have not have been in compliance with the regulations on surgical supplies. Likewise, a formal internal audit system would have been capable of investigating any regulatory non-compliance. This could have then been reported in internal reports and, if deemed necessary, to external authorities. A criticism common to many family-controlled companies is the lack of external expertise in the form of an effective non-executive presence. Although some companies employ non-executive directors (NEDs) on a voluntary and ‘best practice’basis, the private company status of Lysus usually means that there is no regulatory requirement to do so. The purposes of NEDs in a listed company are to represent the strategic interests of shareholders and to populate the main board committees.These committees, in turn, provide a level of assurance to shareholders of probity, transparency and robustness.

【正确答案】Criticise Amy Tsang’s behaviour The case describes three ways in which Amy Tsang acted in a manner inconsistent with her status as a qualified accountant.Although described by the case as being in her first senior role as finance director, this was no excuse for acceding to the demands of the overbearing and bullying Mr Mara. Her lack of professionalism was one of the factors which led to the failure of some of the replacement joints and the human suffering which resulted. In the first instance, and in response to a request from Mr Mara, she performed accounting calculations for the change to industrial-grade materials based on what she knew were illegal materials, unauthorised for the use in surgical joint replacements. This involved calculating the costings and their effects on company profits, and the size and nature of the factory retooling necessary to make the change. As a senior manager in the company, her correct response, when confronted with such a request, should have been to challenge Mr Mara, clearly reminding him that such a change would be both illegal and unethical since it is stated that she was fully aware of this. Once her calculations had been considered and the effects on profits ascertained, she used her position as finance director to sign off (approve) the investment needed to change the manufacturing process to enable the inferior material to be used.This was a breach of trust conceivably even more serious than the calculations because she approved an investment knowing it would commit the company to the continued use of an illegal material. In retooling the factory so it was capable of using the industrial-grade material, she knowingly approved an action she knew to be illegal. This is a serious breach of the probity expected of a professional accountant. The third way in which Amy Tsang acted unethically was to sign the compliance reports to the medicines regulator to say that all of the materials and manufacturing were compliant with the licence granted to the company to produce the replacement joints. Mr Mara was equally complicit in this, of course, but as a qualified accountant, professionally bound to the ethical code of such a professional person, this was an act of professional negligence on her part. Against the public interest All professionals, including professional accountants, have a primary duty to the public interest. Professionals enjoy a privileged position of high esteem in society, and in return, it is important that they act in such a way as to maintain that position of trust. This includes a commitment to high social values such as human welfare, fairness, justice, integrity and probity, and the wellbeing of society. In this case, Amy Tsang acted against the public interest in three important ways. First, her actions facilitated the manufacture and use of products which were illegal and unauthorised. These failed to comply with relevant regulations and so the accountant was complicit in illegal actions. Absolute legal compliance is assumed for all professionals and Amy Tsang failed on several counts to live up to this expectation and duty. Second, because the inferior material was hazardous to the health of some of those who had joint replacements, her actions also meant that many people became ill and some died. The public interest is concerned with the maximisation of benefit to society and a reduction in health is clearly a breach of that trust. In the interest of what Mr Mara considered higher profits (although this ultimately proved to be misplaced), Amy Tsang took actions clearly to the detriment of Lysus’s customers and undermined their trust in the company. It may also have increased society’s mistrust of surgical suppliers generally, and this may have other, unforeseen, negative consequences. Her actions partly undermined society’s trust in the accounting profession and may have slightly reduced the standing of accountants in society. By taking a full part in the deceit, and approving the changes to the sourcing and manufacture of the products, Amy Tsang was complicit in partially reducing society’s trust in professionals and this is against the wider public interest. It is important that professionals of all types, including accountants, act in such a way as to maintain society’s trust in the professions.

【正确答案】Risks vary by sector Risks do not apply equally to all companies. This is because risks are associated with particular activities, and companies in different industrial sectors are exposed to different risks because of what they do. So, for example, banks are more exposed to a range of financial risks whilst manufacturing and mining are usually more concerned with health and safety risks. This means that the risk auditing process, usually beginning with risk identification, will be highly context dependent, with different risks being registered depending upon the activities of companies within each sector. Legal risk in surgical supplies Companies such as Lysus, which are involved with the manufacture and distribution of surgical supplies, are exposed to certain risks because of their strategic positioning and main activities. Surgical supply companies are engaged with the production of goods which can have profound effects on the patients (for good or bad) and so are positioned quite differently to producers of less health-critical goods such as, for example, stationery supplies. Legal risk is the risk, to a company or individual, of legal action against it. This may result from litigation or regulatory sanction for non-compliance with an impact expressed in terms of fines, asset seizure, social disapproval or other legal penalty including imprisonment of individual directors. When individuals have a surgical procedure, they expose themselves to a number of vulnerabilities including the quality of the procedures at the health facility, the skills of the medical staff and the quality (i.e. fitness for purpose) of the replacement devices, if relevant. When the failure of a surgical product, purchased from third parties, causes unnecessary health or mobility problems for a patient, they will often claim that all of the supply chain is accountable for the end result. In the event of any such failure, the patient or his/her family might believe that legal redress is the only way to effectively seek justice for the less-than-successful procedure. When one or more parts of the process are not fit for purpose, the effects on the patient can be unfortunate, perhaps resulting in ill health, immobility or even death. When a cause of a failure can be clearly identified, such as the fracture or premature deterioration of a replacement device because of defective manufacturing or the employment of an inferior material, then the patient may seek legal redress for the pain and distress caused and also the recovery of costs incurred. It is a fact that an individual can be so personally involved in, and by, a failure which makes the legal risk so prominent in the surgical supplies industry.

【正确答案】(i)Problems at Lysus Every investor knows that the public listed company form is not guaranteed to be a safe and incorruptible form of business, but some governance initiatives seem to have worked to combat the worst excesses. One of the most prominent is the separation of roles at the head of a company and the introduction of a non-executive chairman. The idea for this came in during the early 1990s and has found its way into most of the world’s major corporate governance codes. I can only wonder how events might have been different had such an effective non-executive chairman been in place at Lysus. It seems that chief executive Mr Mara was able to commit the offences he did precisely because there was nobody in the company able to confront him and keep his irresponsible behaviour in check. A non-executive chairman would be able to challenge Mr Mara in a way that no other people in the company were seemingly able to do. The whole purpose of splitting these senior roles is to prevent the investment of unfettered power in a single individual. In addition, when there is a strong personality like Mr Mara in a private company, it is this person who imprints his or her character on the business culture. An effective non-executive chairman, able to determine the agendas for board meetings and by exercising effective leadership, would be able to influence the culture and ‘tone from the top’, making a higher standard of ethical behaviour feel more normal in the company. If staff see their bosses acting unethically and in a dishonest or deceitful way, then it should come as no surprise that this can infect the whole of the company over time. The presence of a strong figure able to exercise the roles of a chairman would, of course, improve the governance in any company. In the case of Lysus, someone whose job it was to promote openness and debate about strategic ideas and ensure that accurate and clear information was freely circulated in the company could expose misconduct like that demonstrated by Mr Mara. Once ideas are openly discussed, the weaker ones are often criticised and exposed as inadequate. The immunity to criticism which Mr Mara felt, allowed him to believe he could get away with using non-compliant materials, but would soon have been rejected had such an effective chairman been in place. The sad case of Amy Tsang is a final salutary case in favour of a non-executive chairman. My own view is that she meant well and was a young, ambitious accountant, but she was effectively forced to comply with Mr Mara by his arrogance and bullying. The presence of a non-executive chairman would have given her, and other concerned directors,someone to communicate with about their concerns and give them someone to confide in. With Mr Mara being her only superior manager in the company, she was effectively forced to comply with Mr Mara or leave the company. In hindsight, it would have been better for her if she had left, but that point is irrelevant now. (ii) Embedding risk awareness I know it is a bit late to offer advice to Lysus but as someone who has seen several stories like Lysus’s in the past, it is worth reminding readers about how situations like this can be avoided. When business risks – those capable of threatening the entire business as a going concern – are realised, the effects are always very unfortunate for those involved. They are often big enough to threaten the business either by a loss of sales or, as in this case, by making the company non-compliant with the regulatory systems which underpin society’s trust in the surgical equipment industry. For those other businesses wrestling with issues such as this, here is the summary of my experience and my advice on improving probity risk awareness. Investments work when we can trust the integrity of directors. When this cannot be assumed, trust in business investments will rapidly deteriorate. As an investment community, these risk-embedding practices should be encouraged in all businesses, whether they are large and listed, or smaller and private. The whole idea, in my view, is to embed all risk awareness into the normal operations of the company. This means that nothing is ‘bolted on’ but that all employees are expected to be risk aware at all times. One of the first ways of achieving this is to establish a visible policy on risk awareness, and have this unreservedly supported by management, trade unions and staff. This should encourage everybody to identify risks, including those arising from the behaviour of management, and bring them to the attention of appropriate people without fearing a negative or hostile response. A philosophy and culture of risk awareness would be developed so that everybody recognises the importance of all risks and seeks to address them as far as possible. Linked to this is the encouragement of open communication and a supportive culture. No-one should think themselves too junior or uninformed to raise a risk issue with management. It is often at the operational levels where risks can have the most unfortunate effects and so many previously unnoticed risks can arise from there. Similarly, management should welcome all discussion of risk as a normal part of their responsibilities and should never dismiss an idea, even if it is something of which management is already aware. It should not be forgotten that it was because of Mr Mara’s lack of probity that the employees of the company lost their jobs: their stake in the company was the security of their jobs, and those jobs are now gone. It is always good practice to establish formal systems such as a risk committee and a risk auditing procedure. The establishment of a risk audit forces the company to identify all risks affecting the business, both internal and external. Once listed on a risk register, each of these can then be assessed according to their perceived probability of being realised and their likely impact. A risk strategy can then be assigned to each risk and any changes to the risk environment can be ‘fed’ into the system to ensure that it remains current. This also provides a reporting mechanism by which individual managers, including the most senior, can be held accountable for their behaviour in respect of risks. Had Mr Mara known that this probity risk had already been identified and assessed by the risk committee, the outcome may have been very different. Such risk management systems work when they are embedded into human resource systems such as job descriptions and appraisals. If the reporting and management of key risks are treated as a standing item in job descriptions and then considered annually as part of staff appraisals, it will soon become normalised into employees’ work roles, and will be considered nothing out of the ordinary. If integrity failures were made something which would attract summary dismissal, for example, the ethical tone in the company may have been improved. A final way to embed risk awareness in general is to publicise success stories in the company and to reward risk awareness behaviour through whatever mechanisms are appropriate. It would be welcomed if the discovery of a new risk or a change in its assessment was something which employees thought to be an exciting thing and something which might attract an additional day’s holiday, a one-off cash payment or a weekend break away somewhere. I wish the situation at Lysus were different. It is a sorry tale and I only hope that the lessons can be learned by other businesses.