New Ideas Company (NIC) was launched early this year as a result of a scientific breakthrough at a university. The company was located in a relatively small regional city, some distance from the main centres of population. Because the initial capital needed was large, the scientists behind the company decided to float the company on the stock exchange and the take up of shares was very good. This meant that the initial capital needs were fully funded. The business itself was highly technical, with many shareholders only weakly understanding the science behind the company. Upon reading the share prospectus, some analysts believed that NIC was a relatively risky business and that it could fail within two years unless a very good management team, including suitable non-executive directors (ideally locally based), was in place.<br>None of the scientists involved in NIC had any experience of business before and had to learn about the roles of a board and how to effectively run a company. Dr Ranjana Foo, the lead scientist who made the scientific discovery, was thought to be the logical person to become chief executive but she herself questioned her suitability for the role. She said she was happiest working alone and in the quiet environment of her laboratory, and was not inclined to invest valuable time learning about running a business as she was not good at relating to a wide range of people.<br>Colleagues said of Ranjana that, being a good scientist, she was excellent at detail but sometimes struggled to see the bigger picture on a project. Always popular, however, Ranjana liked to think that all of her colleagues liked her and she tended to avoid confrontation and conflict wherever possible.<br>One potential director of NIC was an experienced local businessman, Dr Idris. Upon being approached about the position, he said that he may have a conflict of interest because he was a major shareholder in one of the potential suppliers of the capital equipment which NIC would be purchasing.<br>Required:<br>(a) Assess Ranjana Foo’s suitability to become chief executive officer (CEO) of New Ideas Company (NIC). Your answer should include an explanation of the roles and personal qualities of a CEO. (10 marks)<br>(b) Explain the benefits, specifically to NIC, of the appointment of ‘suitable non-executive directors’ and discuss the difficulties which the company may encounter in non-executive recruitment. (9 marks)<br>(c) Explain ‘conflict of interest’ and briefly discuss how a major shareholding in a potential supplier could be a conflict of interest to Dr Idris were he to become a director of NIC. (6 marks)

Section A – This ONE question is compulsory and MUST be attempted<br>Hesket Nuclear (HN) is a nuclear power station in Ayland, a large European country. The HN plant is operated by Hesket Power Company (HPC), which in turn is wholly owned by the government of Ayland. Initially opened in the late 1950s, the power station grew in subsequent decades by the addition of several other facilities on the same site. HN now has the ability to generate 5% of Ayland’s entire electricity demand and is one of the largest nuclear stations in Europe. At each stage of its development from the 1950s to the present day, development on the site was welcomed by the relevant local government authorities, by the businesses that have supported it, by the trade union that represents the majority of employees (called Forward Together or FT for short) and also by the national Ayland government. A nuclear reprocessing facility was added in the 1980s. This is a valuable source of overseas income as nuclear power producers in many other parts of the world send material by sea to HN to be reprocessed. This includes nuclear producers in several developing countries that rely on the cheaper reprocessed fuel (compared to ‘virgin’ fuel) that HN produces.<br>HPC is loss-making and receives a substantial subsidy each year from the government of Ayland. HPC has proven itself uneconomic but is deemed politically and environmentally necessary as far as the government is concerned. The government of Ayland has reluctantly accepted that large subsidies to HPC will be necessary for many years but considers nuclear power to be a vital component of its energy portfolio (along with other energy sources such as oil, gas, coal, renewables and hydroelectric) and also as a key part of its ‘clean’ energy strategy. Unlike energy from fossil fuels (such as coal, gas and oil), nuclear power generates a negligible amount of polluting greenhouse gas. HN also provides much needed employment in an otherwise deprived part of the country. The HN power station underpins and dominates the economy of its local area and local government authorities say that the HN plant is vital to the regional economy.<br>Since it opened, however, the HN power station has been controversial. Whilst being welcomed by those who benefi t from it in terms of jobs, trade, reprocessing capacity and energy, a coalition has gradually built up against it comprising those sceptical about the safety and environmental impact of nuclear power. Some neighbouring countries believe themselves to be vulnerable to radioactive contamination from the HN plant. In particular, two countries, both of whom say their concerns about HN arise because of their geographical positions, are vocal opponents. They say that their geographical proximity forced them to be concerned as they are affected by the location of the HN plant which was not of their choosing.<br>The government of Beeland, whose capital city is 70 km across the sea from HN (which is situated on the coast), has consistently opposed HN and has frequently asked the government of Ayland to close HN down. The Beeland government claims that not only does ‘low-level’ emission from the site already contaminate the waters separating the two countries but it also claims that any future major nuclear ‘incident’ would have serious implications for the citizens of Beeland. There is some scientifi c support for this view although opinion is divided over whether Beeland is being irrational in its general opposition to HN.<br>The government of Ceeland is also a vocal opponent of HN. Ceeland is located to the north of Beeland and approximately 500 km away from Ayland. Some nuclear scientists have said that with such a large stretch of water between the HN plant and Ceeland, even a much-feared incident would be unlikely to seriously impact on Ceeland. Some commentators have gone further and said that Ceeland’s concerns are unfounded and ‘borne of ignorance’. FT, the trade union for HN employees, issued a statement saying that Ceeland had no reason to fear HN and that its fears were ‘entirely groundless’.<br>HN’s other vocal and persistent opponent is No Nuclear Now (NNN), a well-organised and well-funded campaigning group. Describing itself on its website as ‘passionate about the environment’, it describes HN’s social and environmental footprint as ‘very negative’. NNN has often pointed to an environmentally important colony of rare seals living near the HN plant. It says that the seals are dependent on a local natural ecosystem around the plant and are unable to move, arguing that the animals are at signifi cant risk from low-level contamination and would have ‘no chance’ of survival if a more serious radioactive leak ever occurred. NNN points to such a leak that occurred in the 1970s, saying that such a leak proves that HN has a poor safety record and that a leak could easily recur.<br>Each time an objection to the HN power station is raised, FT, the trade union, robustly defends the HN site in the media, and argues for further investment, based on the need to protect the jobs at the site. Furthermore, the radiation leak in the 1970s led to FT uniting with the HPC board to argue against those stakeholders that wanted to use the leak as a reason to close the HN site. The combination of union and HPC management was able to counter the arguments of those asking for closure.<br>HN places a great deal of emphasis on its risk management and often publicises the fact that it conducts continual risk assessments and is in full compliance with all relevant regulatory frameworks. Similarly, FT recently pointed out that HN has had an ‘impeccable’ safety record since the incident in the 1970s and says on its website that it is ‘proud’ that its members are involved in ensuring that the company is continually in full compliance with all of the regulatory requirements placed upon it.<br>The board of HPC, led by chairman Paul Gog, is under continual pressure from the government of Ayland to minimise the amount of government subsidy. Each year, the government places challenging targets on the HPC board requiring stringent cost controls at the HN power station. In seeking to reduce maintenance costs on the expiry of a prior maintenance contract last year, the board awarded the new contract to an overseas company that brought its own workers in from abroad rather than employing local people. The previous contract company was outraged to have lost the contract and the move also triggered an angry response from the local workforce and from FT, the representative trade union.<br>FT said that it was deplorable that HPC had awarded the contract to an overseas company when a domestic company in Ayland could have been awarded the work. The union convenor, Kate Allujah, said that especially in the nuclear industry where safety was so important, domestic workers were ‘more reliable’ than foreign workers who were brought in purely on the basis of cost and in whose countries safety standards in similar industries might not be so stringent. HPC said that it had done nothing illegal as the foreign workers were allowed to work in Ayland under international legal treaties. Furthermore, it argued that pressure by FT to raise wages over recent years had created, with the government’s subsidy targets, the cost pressure to re-tender the maintenance contract.<br>On HN’s 50th anniversary last year, NNN published what it called a ‘risk assessment’ for the HN power station. It said it had calculated the probabilities (P) and impacts (I) of three prominent risks.<br>Risk of major radioactive leak over the next 10 years: P = 10%, I = 20<br>Risk of nuclear explosion over the next 50 years: P = 20%, I = 100<br>Risk of major terrorist attack over next 10 years: P = 10%, I = 80<br>Impacts were on an arbitrary scale of 1–100 where 100 was defi ned by NNN as ‘total nuclear annihilation of the area and thousands of deaths’.<br>The governments of Beeland and Ceeland seized upon the report, saying that it proved that HN is a genuine threat to their security and should be immediately closed and decommissioned. HN’s risk manager, Keith Wan, vigorously disagreed with this assessment saying that the probabilities and the impacts were ‘ridiculous’, massively overstated and intended to unnecessarily alarm people. HN’s public relations offi ce was also angry about it and said it would issue a rebuttal statement.<br>Required:<br>(a) Distinguish between voluntary and involuntary stakeholders, identifying both types of stakeholders in Hesket Nuclear. Assess the claims of THREE of the involuntary ‘affected’ stakeholders identifi ed. (12 marks)<br>(b) The trade union, Forward Together, has had a long relationship with HN and represents not only the main workforce but also the employees of the maintenance company replaced by the foreign workers.<br>Required:<br>Explain the roles of employee representatives such as trade unions in corporate governance and critically evaluate, from the perspective of HPC’s board, the contribution of Forward Together in the governance of HPC. (10 marks)<br>(c) Explain what an agency relationship is and examine the board of HPC’s current agency relationship and objectives. Briefl y explain how these would differ if HPC was a company with private shareholders. (10 marks)<br>(d) As a part of HPC’s public relations effort, it has been proposed that a response statement should be prepared for the company’s website to help address two major challenges to their reputation.<br>Required:<br>Draft this statement to include the following:<br>(i) Referring to the NNN report, explain why accurate risk assessment is necessary at Hesket Nuclear. (8 marks)<br>(ii) Explain what a social and environmental ‘footprint’ is and construct the argument that HN’s overall social and environmental footprint is positive. (6 marks)<br>Professional marks will additionally be awarded in part (d) for drafting a statement that is clear, has a logical fl ow, is persuasive and is appropriately structured. (4 marks)

In a major policy speech, Government finance minister Mrs Wei Yttria said that the audit and assurance industry’s work should always be judged by the effect it has on public confidence in business. She said that it was crucial that professional services such as audit and assurance should always be performed in the public interest and that there should be no material threats to the assurer’s independence. Enron and other corporate failures happened, she said,because some accountants didn’t understand what it was to act in the public interest. She stressed that it was important that firms should not provide more than one service to individual clients. If a firm audited a client then, she said, it shouldn’t provide any other services to that client.<br>Mr Oggon Mordue, a financial journalist who had worked in audit and assurance for many years, was in the audience.<br>He suggested that the normal advice on threats to independence was wrong. On the contrary in fact, the more services that a professional services firm can provide to a client the better, as it enables the firm to better understand the client and its commercial and accounting needs. Mrs Yttria disagreed, saying that his views were a good example of professional services firms not acting in the public interest.<br>Mr Mordue said that when he was a partner at a major professional services firm, he got to know his clients very well through the multiple links that his firm had with them. He said that he knew all about their finances from providing audit and assurance services, all about their tax affairs through tax consulting and was always in a good position to provide any other advice as he had acted as a consultant on other matters for many years including advising on mergers, acquisitions, compliance and legal issues. He became very good friends with the directors of client companies, he said. The clients, he explained, also found the relationship very helpful and the accounting firms did well financially out of it.<br>Another reporter in the audience argued with Mr Mordue. Ivor Nahum said that Mr Mordue represented the ‘very worst’ of the accounting profession. He said that accounting was a ‘biased and value laden’ profession that served minority interests, was complicit in environmental degradation and could not serve the public interest as long as it primarily served the interests of unfettered capitalism. He said that the public interest was badly served by accounting,as it did not address poverty, animal rights or other social injustices.<br>Required:<br>(a) Explain, using accounting as an example, what ‘the public interest’ means as used by Mrs Yttria in her<br>speech. (5 marks)<br>(b) This requirement concerns ethical threats. It is very important for professional accountants to be aware of ethical threats and to avoid these where possible.<br>Required:<br>(i) With reference to the case as appropriate, describe five types of ethical threat. (5 marks)<br>(ii) Assess the ethical threats implied by Mr Mordue’s beliefs. (8 marks)<br>(c) Assess Ivor Nahum’s remarks about the accounting profession in the light of Gray, Owen & Adams’ deep<br>green (or deep ecologist) position on social responsibility. (7 marks)

What’s the passage mainly about?

A. Heroes who have changed the world.
B. Three traits that a true hero possesses.
C. The bettering off of the present world.
D. The power of the people as a whole.

What does the speaker want to prove by using Abraham Lincoln as an example?

A true hero can choose to do the right things.
B. A true hero is always modest and unselfish.
C. A true hero must have a strong will.
D. A true hero tends to treat others equally.

Who is used as an example to show that a true hero can influence a large number of people?

A. Benjamin Franklin.
B. Martin Luther King, Jr.
C. George Washington.
D. Thomas Jefferson.

Among whom was the survey conducted?

A. Parents of teenagers.
B. Soccer coaches.
C. Young people.
D. Professional athletes.

What was found in the survey?

A. Men care more about winning than women.
B. Desire for winning produces a lot of pressure.
C. Most young people do not play sports on a regular basis.
D. Winning in sports is not important to most teenagers.

What do parents and coaches care most about?

A. The children can enjoy the sports.
B. The children are in better physical condition.
C. The children can benefit in character.
D. The children can win in the sports.

What would Coach Vince Lombardi agree with?

A. Failure teaches us more than success.
B. Sports should be played only for fun.
C. All athletes should be encouraged to try their best.
D. Children should not take part in competitive games.