【正确答案】(i) Institutional investor intervention Six reasons are typically cited as potential grounds for investor intervention. Whilst it would be rare to act on the basis of one factor (unless it was particularly unfavourable), an accumulation of factors may have such an effect. Furthermore, institutional investors have a moral duty to use their power to monitor the companies they invest in for the good of all investors, as recognised in most codes of corporate governance. Institutional investors have the expertise at their disposal to understand the complexities of managing large corporations. As such, they can take a slightly detached view of the business and offer advice where appropriate. The typical reasons for intervention are cited below. Concerns about strategy, especially when, in terms of long-term investor value, the strategy is likely to be excessively risky or, conversely, unambitious in terms of return on investment. The strategy determines the long-term value of an investment and so is very important to shareholders. Poor or deteriorating performance, usually over a period of time, although a severe deterioration over a shorter period might also trigger intervention, especially if the reasons for the poor performance have not been adequately explained in the company’s reporting. Poor non-executive performance. It is particularly concerning when non-executives do not, for whatever reason, balance the executive board and provide the input necessary to reassure markets. Their contributions should always be seen to be effective. This is especially important when investors feel that the executive board needs to be carefully monitored or constrained, perhaps because one or another of the factors mentioned in this answer has become an issue. Major internal control failures. These are a clear sign of the loss of control by senior management over the operation of the business. These might refer, for example, to health and safety, quality, budgetary control or IT projects. In the case of ZPT, there were clear issues over the control of IC systems for generating fi nancial reporting data. Compliance failures, especially with statutory regulations or corporate governance codes. Legal non-compliance is always a serious matter and under comply-or-explain, all matters of code non-compliance must also be explained. Such explanations may or may not be acceptable to shareholders. Excessive directors’ remuneration or defective remuneration policy. Often an indicator of executive greed, excessive board salaries are also likely to be an indicator of an ineffective remunerations committee which is usually a non-executive issue. Whilst the absolute monetary value of executive rewards are important, it is usually more important to ensure that they are highly aligned with shareholder interests (to minimise agency costs). Poor CSR or ethical performance, or lack of social responsibility. Showing a lack of CSR can be important in terms of the company’s long-term reputation and also its vulnerability to certain social and environmental risks. [Tutorial note: the study texts approach this slightly differently.] (ii) Case for intervention After the fi rst restatement, it was evident that three of the reasons for interventions were already present. Whilst one of these perhaps need not have triggered an intervention alone, the number of factors makes a strong case for an urgent meeting between the major investors and the ZPT board, especially Mr Xu. Poor performance. The restated results were ‘all signifi cantly below market expectations’. Whilst this need not in itself have triggered an institutional investor intervention, the fact that the real results were only made public after an initial results announcement is unfortunate. The obvious question to ask the ZPT board is why the initial results were mis-stated and why they had to be corrected as this points to a complete lack of controls within the business. A set of results well below market expectations always needs to be explained to shareholders. Internal control and potential compliance failures. There is ample evidence to suggest that internal controls in ZPT were very defi cient, especially (and crucially) those internal controls over external fi nancial reporting. The case mentions, ‘no effective management oversight of the external reporting process and a disregard of the relevant accounting standards’, both of which are very serious allegations. Linked to this, the investors need an urgent clarifi cation of the legal allegations of fraud, especially in the light of the downward restatement of the results. Any suggestion of compliance failure is concerning but fraud (down to intent rather than incompetence) is always serious as far as investors are concerned. Excessive remuneration in the form of the $20 million bonus. It is likely that this bonus was excessive even had the initial results been accurate, but after the restatement, the scale of the bonus was evidently indefensible as it was based on false fi gures. The fact that the chief executive is refusing to repay the bonus implies a lack of integrity, adding weight to the belief that there may be some underlying dishonesty. Furthermore, although the investors thought it excessive, the case describes this as within the terms of Mr Xu’s contract. A closer scrutiny of remunerations policy (and therefore non-executive effectiveness) would be appropriate.

【正确答案】Absolutist and relativist perspectives Absolutism and relativism An absolutist ethical stance is when it is assumed that there is an unchanging set of ethical principles which should always be obeyed regardless of the situation or any other pressures or factors that may be present. Typically described in universalist ways, absolutist ethics tends to be expressed in terms such as ‘it is always right to ... ’, ‘it is never right to . . . ’ or ‘it is always wrong to . . . ’ Relativist ethical assumptions are those that assume that real ethical situations are more complicated than absolutists allow for. It is the view that there are a variety of acceptable ethical beliefs and practices and that the right and most appropriate belief depends on the situation. The best outcome is arrived at by examining the situation and making ethical assessments based on the best outcomes in that situation. Evaluation of Shazia Lo’s behaviour – absolutist ethics Firstly, Shazia Lo was correct to be concerned about the over-valuation of contracts at ZPT. As a qualifi ed accountant, she should never be complicit in the knowing mis-statement of accounts or the misrepresentation of contract values. For a qualified accountant bound by very high ethical and professional standards, she was right to be absolutist in her instincts even if not in her eventual behaviour. Secondly, she was also right to raise the issue with the fi nance director. This was her only legitimate course of action in the first instance and it would have been wrong, in an absolutist sense, to remain silent. Given that she was intimidated and threatened upon raising the issue, she was being absolutist in threatening to take the issue to the press (i.e. whistleblowing). It would be incompatible with her status as a professional accountant to be complicit in false accounting as she owed it to the ZPT shareholders, to her professional body and to the general public (the public interest) never to process accounting data she knows to be inaccurate. An effective internal audit process would be a source of information for this action. Evaluation of Shazia Lo’s behaviour – relativist ethics It is clear from Shazia Lo’s behaviour that despite having absolutist instincts, other factors caused her to assume a relativist ethic in practice. Her mother’s serious illness was evidently the major factor in overriding her absolutist principles with regard to complicity in the fraudulent accounting fi gures. It is likely she weighed her mother’s painful suffering against the need to be absolutist with regard to the mis-statement of contract values. In relativist situations, it is usually the case that one ‘good’ is weighed against another ‘good’. Clearly it is good (an absolute) to show compassion and sympathy toward her mother but this should not have caused her to accept the payment (effectively a bribe to keep silent). She may have reasoned that the continued suffering of her mother was a worse ethical outcome than the mis-statement of ZPT accounts and the fact that she received no personal income from the money (it all went to support her mother) would suggest that she acted with reasonable motives even though her decision as a professional accountant was defi nitely inappropriate. Given that accepting bribes is a clear breach of professional codes of ethics for accountants and other professionals, there is no legitimate defence of her decision and her behaviour was therefore wrong.

【正确答案】(i) Speech on importance of good corporate governance and consequences of failure Introduction Ladies and Gentlemen, I begin my remarks today by noting that we meet at an unfortunate time for business in this country. In the wake of the catastrophic collapse of ZPT, one of the largest telecommunications companies, we have also had to suffer the loss of one of our larger audit fi rms, JJC. This series of events has heightened in all of us an awareness of the vulnerability of business organisations to management incompetence and corruption. The consequences of corporate governance failures at ZPT. I would therefore like to remind you all why corporate governance is important and I will do this by referring to the failures in this unfortunate case. Corporate governance failures affect many groups and individuals and as legislators, we owe it to all of them to ensure that the highest standards of corporate governance are observed. Firstly and probably most obviously, effective corporate governance protects the value of shareholders’ investment in a company. We should not forget that the majority of shareholders are not ‘fat cats’ who may be able to afford large losses. Rather, they are individual pension fund members, small investors and members of mutual funds. The hard-working voters who save for the future have their efforts undermined by selfi sh and arrogant executives who deplete the value of those investments. This unfairness is allowed to happen because of a lack of regulation of corporate governance in this country. The second group of people to lose out after the collapse of ZPT were the employees. It is no fault of theirs that their directors were so misguided and yet it is they who bear a great deal of the cost. I should stress, of course, that jobs were lost at JJC as well as at ZPT. Unemployment, even when temporary and frictional, is a personal misery for the families affected and it can also increase costs to the taxpayer when state benefi ts are considered. Thirdly, because of the collapse of ZPT, creditors have gone unpaid and customers have remained unserviced. Again, we should not assume that suppliers can afford to lose their receivables in ZPT and for many smaller suppliers, their exposure to ZPT could well threaten their own survival. Where the value of net assets is inadequate to repay the full value of payables, let alone share capital, there has been a failure in company direction and in corporate governance so I hope you will agree with me that effective management and sound corporate governance are vital. The loss of two such important businesses, ZPT and JJC, has caused great disturbance in the telecommunications and audit industries. As JJC lost its legitimacy to provide audit services and its clients moved to other auditors, the structure of the industry changed. Other auditors will eventually be able to absorb the work previously undertaken by JJC but clearly this will cause short-to-medium term capacity issues for those fi rms as they redeploy resources to make good on those new contracts. This was, I should remind you, both unnecessary and entirely avoidable. Linked to this point, I would remind colleagues that it is important for business in general and auditing in particular to be respected in society. The loss of auditors’ reputation caused by these events is very unfortunate as auditing underpins our collective confi dence in business reporting. It would be wholly inappropriate for other auditors to be affected by the behaviour of JJC or for businesses in general to be less trusted because of the events at ZPT. I very much hope that such losses of reputation and in public confi dence will not occur. Finally, we have all been dismayed by the case of Shazia Lo that was reported in the press. A lack of sound corporate governance practice places employees such as Ms Lo in impossible positions. Were she to act as whistleblower she would, by all accounts, have been victimised by her employers. Her acceptance of what was effectively a bribe to remain silent brings shame both on Ms Lo and on those who offered the money. An effective audit committee at ZPT would have offered a potential outlet for Ms Lo’s concerns and also provided a means of reviewing external audit and other professional services at ZPT. This whole situation could, and would have been, avoided had the directors of ZPT managed the company under an effective framework of corporate governance. (ii) The case for the mandatory external reporting of internal controls and risks I now turn to the issue of the mandatory external reporting of internal controls and risks. My reason for raising this as an issue is because this was one of the key causes of ZPT’s failure. My fi rst point in this regard is that disclosure allows for accountability. Had investors been aware of the internal control failures and business probity risks earlier, it may have been possible to replace the existing board before events deteriorated to the extent that they sadly did. In addition, however, the need to generate a report on internal controls annually will bring very welcome increased scrutiny from shareholders and others. It is only when things are made more transparent that effective scrutiny is possible. Secondly, I am fi rmly of the belief that more information on internal controls would enhance shareholder confi dence and satisfaction. It is vital that investors have confi dence in the internal controls of companies they invest in and increased knowledge will encourage this. It was, I would remind you, a lack of confi dence in ZPT’s internal controls and the strong suspicion of fraud that caused the share price to collapse and the company to ultimately fail. Furthermore, compulsory external reporting on internal controls will encourage good practice inside the company. The knowledge that their work will be externally reported upon and scrutinised by investors will encourage greater rigour in the IC function and in the audit committee. This will further increase investor confi dence. To those who might suggest that we should opt for a comply-or-explain approach to this issue, I would argue that this is simply too important an issue to allow companies to decide for themselves or to interpret non-mandatory guidelines. It must be legislated for because otherwise those with poor internal controls will be able to avoid reporting on them. By specifying what should be disclosed on an annual basis, companies will need to make the audit of internal controls an integral and ongoing part of their operations. It is to the contents of an internal control report that I now turn. (iii) Content of external report on internal controls I am unable, in a speech such as this, to go into the detail of what I would like to see in an external report on internal controls, but in common with corporate governance codes elsewhere, there are four broad themes that such a report should contain. Firstly, the report should contain a statement of acknowledgement by the board that it is responsible for the company’s system of internal control and for reviewing its effectiveness. This might seem obvious but it has been shown to be an important starting point in recognising responsibility. It is only when the board accepts and acknowledges this responsibility that the impetus for the collection of data and the authority for changing internal systems is provided. The ‘tone from the top’ is very important in the development of my proposed reporting changes and so this is a very necessary component of the report. Secondly, the report should summarise the processes the board (or where applicable, through its committees) has applied in reviewing the effectiveness of the system of internal control. These may or may not satisfy shareholders, of course, and weak systems and processes would be a matter of discussion at AGMs for non-executives to strengthen. Thirdly, the report should provide meaningful, high level information that does not give a misleading impression. Clearly, internal auditing would greatly increase the reliability of this information but a robust and effective audit committee would also be very helpful. Finally, the report should contain information about any weaknesses in internal control that have resulted in error or material losses. This would have been a highly material disclosure in the case of ZPT and the costs of non-disclosure of this was a major cause of the eventual collapse of the company. I very much hope that these brief remarks have been helpful in persuading colleagues to consider the need for increased corporate governance legislation. Thank you for listening. [Tutorial note: full speech not required to gain full professional marks as the question asks for ‘sections’ of the speech.]