Reference no: EM132428610

Problem: Alice Woods joined the board of Duke and Company, a large retailer, as finance director earlier this year. Whilst Alice was glad to have finally been given the chance to become finance director after several years as a financial accountant, she quickly realised that the new appointment would offer her a lot of challenges. Duke was established almost 100 years ago. Members of the Duke family have occupied senior board positions since the outset and even after the company's flotation 50 years ago a member of the Duke family has either been executive chairman or chief executive. The family, who still own 40% of the shares, consider it their right to occupy the most senior positions in the company so have never been very active in external recruitment. They only appointed Alice because they felt they needed a qualified accountant on the board to deal with changes in international financial reporting standards. Several former executive members have been recruited as non-executives immediately after they retired from full-time service. A recent death, however, has reduced the number of non-executive directors to two. These sit alongside an executive board of seven that, apart from Alice, have all been in post for over ten years. Alice noted that board meetings very rarely contain any significant discussion of strategy and never involve any debate or disagreement. She observed that notes on strategy were not presented at board meetings and she asked Edmund Duke, the Chairman, whether the existing board was fully equipped to formulate strategy in the changing world of retailing. She did not receive a reply.

Required:

Question 1: Explain 'agency theory' in the context of corporate governance? Outline the agency relationships in Duke and Company.

Question 2: Critically examine the corporate governance issues in Duke and Company. Do you find any similarities between the board structure and composition of Duke and Satyam Computer Services that led to the failure of corporate governance at Satyam?