Business Management Programme
2022-2023 Semester 2 Case Report (Final Assessment)

Module Code : ACY6118
Module Title : Corporate Governance and Compliance
Date and Time : 3:00PM, 22-25 April 2023
Time Allowed : 3 days

Answer Book

Student Name Programme MBM
Student
ID No. p Group L-01

Question Marks
1
2
3
4
Total

Word count:
Answer ALL Questions in NOT more than 2,500 words, Total marks are 100 marks

Please answer the relevant questions in the space provided.

(1) Before John Stumpf’s resignation on 12 October 2016, discuss what type of corporate governance model that Wells Fargo might belong to? Explain the characteristics of this specific type of corporate governance model. (10 marks)

[End of Question, Total for Question 1: 10 marks]

(2) Explain each of the following corporate governance problems then faced by Wells Fargo. If Wells Fargo is a Hong Kong incorporated company listed on the Main Board of The Stock Exchange of Hong Kong Limited, discuss your recommended measures to tackle the said corporate governance problems with reference to the relevant Code Provisions of the Hong Kong Corporate Governance Code (Appendix 14 to the Main Board Listing Rules) (“CGC”) in order to achieve good corporate governance.

(a) John Stumpf’s dual role; (12 marks)

(b) Long tenures of directors; and (16 marks)

(c) Inactive board. (16 marks)

[End of Question, Total for Question 2: 44 marks]

(3) John Stumpf was walking away with US$133.1 million upon his resignation, including 2.4 million shares he accumulated while Carrie Tolstedt resigned and walked with a US$125 million payout. If a similar case occurs in Hong Kong, discuss:
(a) the terms of reference; and (12 marks)
(b) recommended measures (12 marks)

that you would recommend Well Fargo’s Board to form a Remuneration Committee for improvement of its excessive remuneration problem with reference to the relevant Code Provisions of the CGC.
(a) Terms of Reference

(b) Recommended Measures

[End of Question, Total for Question 3: 24 marks]

(4) Although a whistleblower hotline had functioned to notify Well Fargo’s senior management of potential violations, the ‘pressure-cooker’ environment of the bank had still maintained.

(a) Identify the alleged misconducts involved in the then banking business of Wells Fargo. (6 marks)

(b) If a similar case occurs in Hong Kong, explain how a company secretary could assist the Board on the policy of whistleblowing. (16 marks)

[End of Question, Total for Question 4: 22 marks]

– END OF PAPER –

(1) Before John Stumpf’s resignation on 12 October 2016, discuss what type of corporate governance model that Wells Fargo might belong to? Explain the characteristics of this specific type of corporate governance model. (10 marks)

Before John Stumpf’s resignation on 12 October 2016, Wells Fargo might belong to the shareholder model of corporate governance. The shareholder model is primarily concerned with maximizing shareholder value and returns, and it prioritizes the interests of shareholders above all other stakeholders. The characteristics of this specific type of corporate governance model include:

Board of Directors: The board of directors is composed of individuals who are elected by shareholders and who are accountable to them. The board’s primary role is to protect and promote shareholder interests and to oversee management’s performance.

Executive Compensation: The executive compensation plan is linked to the company’s performance and stock price, and it is designed to align the interests of executives with those of shareholders. This can include stock options, bonuses, and other incentives.

Shareholder Activism: Shareholders have a voice in the company’s governance and can influence decision-making through voting on board members and other proposals.

Transparency and Disclosure: The company is transparent and provides adequate disclosure to shareholders regarding financial performance, risk management, and corporate strategy.

Market-Based Discipline: The market imposes discipline on the company’s performance, and shareholders can vote with their feet by buying or selling shares based on the company’s performance.

(2) Explain each of the following corporate governance problems then faced by Wells Fargo. If Wells Fargo is a Hong Kong incorporated company listed on the Main Board of The Stock Exchange of Hong Kong Limited, discuss your recommended measures to tackle the said corporate governance problems with reference to the relevant Code Provisions of the Hong Kong Corporate Governance Code (Appendix 14 to the Main Board Listing Rules) (“CGC”) in order to achieve good corporate governance.

(a) John Stumpf’s dual role; (12 marks)

John Stumpf held the dual roles of Chairman and CEO, which is a potential conflict of interest. As the Chairman, Stumpf was responsible for leading the Board of Directors, which is tasked with overseeing management’s performance and protecting shareholder interests. As the CEO, Stumpf was responsible for running the company’s day-to-day operations and making strategic decisions. This dual role creates a potential conflict of interest because Stumpf could prioritize his own interests over those of the shareholders.

To tackle this corporate governance problem, Wells Fargo should separate the roles of Chairman and CEO, which would improve the independence and effectiveness of the Board of Directors. The Hong Kong Corporate Governance Code (CGC) recommends that the roles of Chairman and CEO should be separated to ensure a balance of power and to prevent the concentration of decision-making authority in one person. This would help ensure that the Board of Directors can effectively oversee management’s performance and protect shareholder interests.

(b) Long tenures of directors; and (16 marks)

Wells Fargo had several directors who had served on the Board for over a decade, which raises concerns about their independence and objectivity. Long tenures of directors may create relationships with management that compromise their ability to effectively oversee management’s performance and protect shareholder interests.

To tackle this corporate governance problem, Wells Fargo should ensure that the Board of Directors has a mix of experienced and independent directors with diverse backgrounds and expertise. The Hong Kong Corporate Governance Code (CGC) recommends that boards should be composed of directors who have the skills, experience, and knowledge required to effectively oversee management’s performance and protect shareholder interests. The CGC also recommends that boards should have a balanced mix of executive and non-executive directors, and that non-executive directors should be independent and free from any relationship or conflict of interest that could affect

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