- 20 Marks
CG – Level 4 – Q1 – Effectiveness of Business Model and Governance Mechanisms
Analyze the effectiveness of Daily Bank Plc's business model based on the given financial excerpts and scenario, and propose five key corporate governance mechanisms for future effectiveness.
Question
The Daily Bank Plc (Sikaman) is a subsidiary of the Daily Bank Plc. Sikaman depends largely on agricultural and other primary exports for its foreign exchange earnings. The Chairman of Daily Bank Plc (Sikaman), Dr. Frank Owusu has received the revised end of the third quarter financial performance of the Bank from the Chairperson of the Audit Committee, Mrs. Mary Adobea. He has invited the Chairman of the Risk Committee, Dr. Kofi Roomy to assist in the discussion concerning the financial performance before the entire board meets. The Chairman’s attention has been drawn to the following excerpts from the unaudited comprehensive income statement as at 30th September, 2022 by the Director of Finance who is also expected to be in attendance. The excerpts are presented below. The Chairman of the Board has also asked the other Chairpersons to consider a recent internal memo from the group that instructed the Management Team to exit from the bond market, but it appeared to have been a missed strategic decision and opportunity because it has been received at the time the market is illiquid. This has created some degree of accountability challenge at the Board level. The Chairman has continued to question, why the board could not call for a shift in the allocation of resources on their own evolution but had to be prompted by the Group’s Board. Summary unaudited statement of Comprehensive Income of Daily Bank Plc. For the third quarter, for the year ended 30th September, 2022.
| Items | September 2022 Amount in millions of cedis (GHS’000s) | September 2021 Amount in millions of cedis (GHS’000s) |
|---|---|---|
| Profit for the Period | 280,000 | 300,000 |
| Other Comprehensive Income | ||
| Items that will not be reclassified to profit or loss | ||
| Expected credit loss on investment securities at fair value other comprehensive income (FVOCI) | (300) | 200 |
| Change in fair value of financial assets at FVOCI (net of tax) | (200,000) | 40,000 |
| Other Comprehensive income for the period net of tax | (230,000) | 40,200 |
| Total Comprehensive Income | 50,000 | 340,200 |
Source: Daily Bank Plc. www.db.sikaman
The Board of Daily Bank Plc (Sikaman) intends to refocus on the business model and the strategy being implemented by the bank. The business model statement recently approved by the Board in the previous annual report was accepted by most of the shareholders and stakeholders present at the latest annual general meeting (AGM). The current financial performance has put the Chairman of the Board on inquiry and is not convinced about the quality of the governance mechanisms in place. These mechanisms are required to protect the bank by minimising potential losses that can potentially occur due to being slow to react to global, environmental and political risks in Sikaman.
Required:
(i) Critically examine effectiveness of the business model of Daily Bank Plc. (35 marks)
(ii) Critically examine the FIVE key corporate governance mechanisms that the Board should introduce to be effective in future. (15 marks)
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