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Business Management

Sample Paper 2

2017 / 2018

Questions and Suggested Solutions

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Sample Paper Business Management Sample Paper 2

NOTES TO USERS ABOUT SAMPLE PAPERS

Sample papers are published by Accounting Technicians Ireland. They are intended to provide

guidance to students and their teachers regarding the style and type of question, and their

suggested solutions, in our examinations. They are not intended to provide an exhaustive list of

all possible questions that may be asked and both students and teachers alike are reminded to

consult our published syllabus (see www.AccountingTechniciansIreland.ie) for a

comprehensive list of examinable topics.

There are often many possible approaches to the solution of questions in professional

examinations. It should not be assumed that the approach adopted in these solutions is the only

correct approach, particularly with discursive answers. Alternative answers will be marked on

their own merits.

This publication is copyright 2017 and may not be reproduced without permission of

Accounting Technicians Ireland.

© Accounting Technicians Ireland, 2017.

http://www.accountingtechniciansireland.ie/

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INSTRUCTIONS TO CANDIDATES

Answer FOUR questions in total

Answer at least ONE question from Section A

Answer at least ONE question from Section B

Answer at least ONE question from Section C

Answer ONE additional question from ANY section (A, B or C).

If more than the requisite number of questions are answered, then only the requisite

number, in the order filed, will be corrected.

Candidates should allocate their time carefully.

Answers should be illustrated with examples, where appropriate.

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Section A (Answer at least ONE of the questions in this section)

Question 1

(a) Distinguish between Innovation and Creativity in a business context.

(4 marks)

(b) Describe the three (3) sets of variables that have been found to stimulate innovation.

(21 marks)

Total: 25 Marks

Question 2

(a) Define Human Resource Management (HRM).

(5 marks)

(b) Outline any 5 (FIVE) of the 12 components of Operations Management.

(20 marks)

Total: 25 Marks

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Section B (Answer at least ONE of the questions in this section)

Question 3

(a) Outline five key functions of a business.

(5 marks)

(b) Explain BOTH of the following business concepts, using examples where appropriate:

SWOT Analysis;

PESTLE Analysis.

(10 marks)

(c) Discuss four key objectives when undertaking environmental scanning.

(10 marks)

Total: 25 Marks

Question 4

(a) Discuss two limitations of Maslow’s “hierarchy of needs” model.

(5 marks)

(b) Explain the concept and discuss the relevance of “equity theory”.

(10 marks)

(c) Comment on the relevance of Vroom’s “expectancy theory” in today’s economic

environment.

(10 marks)

Total: 25 Marks

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Section C

(Answer at least ONE of the questions in this section)

Question 5

(a) Discuss the role of demographics in management today.

(10 marks)

(b) Management is no longer constrained by national borders. The world has become a global

village, a world without boundaries where goods and services are produced and marketed

worldwide.

Describe the globalization process an organisation may follow.

(10 marks)

(c) Outline the different type of global organisations that exist.

(5 marks)

Total: 25 Marks

Question 6

(a) Explain the term Corporate Governance (5 marks)

(b) Write an explanatory note on any TWO (2) of the following;

o Governance Initiatives for Irish SMEs

o Some Corporate Governance issues a CEO of Irish SME needs to consider

o The Irish Corporate Governance Annex

o Corporate Governance standard for the civil service & CG framework

(2 x 10 marks)

Total Marks: 25

REMINDER TO STUDENTS – You are required to answer FOUR questions in total. Make sure

that you have completed the required number of questions.

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Suggested Solutions

DRAFT ONLY

SECTION A

Question 1

(a) The way organisations thrive today is through innovation or they will die! The standard of

innovation to which many organisations strive is that achieved by such companies as 3M,

Toyota, and Sony.

Creativity means the ability to combine ideas in a unique way or to make unusual associations

between ideas. Example, Mattel. Innovation is the process of taking a creative idea and turning

it into a useful product, service, or method of operation. Some people believe that creativity is

inborn; others believe that with training anyone can be creative. 4 marks

(b) There are three sets of variables that have been found to stimulate innovation. They pertain

to the organisation’s structure, culture, and human resource practices. 21 marks

EXHIBIT 7-5 Innovation Variables STIMULATE INNOVATION

Cultural Variables

• Acceptance of Ambiguity

• Tolerance of the Impractical

• Low External Controls

• Tolerance of Risks

• Tolerance of Conflict

• Focus on Ends

• Open-System Focus

• Positive Feedback

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Structural Variables

• Organic Structure

• Abundant Resources

• High Inter unit Communication

• Minimal Time Pressure

• Work and Network Support

Human Resources Variables

• High Commitment to Training and Development

• High Job Security

• Creative People (Robbins, 2013)

Question 2

(a) Define Human Resource Management (HRM) 5 marks

Candidates should provide a referenced definition of HRM, one of such;

Boddy (2008) defines HRM simply as ‘the effective use of human resources in order to enhance

organisational performance.’ Dessler (2013) provides a more comprehensive definition, as

follows: ‘The policies and practices involved in carrying out the “people” or human resource

aspects of a management position, including recruiting, screening, training, rewarding, and

appraising’. These are all stated in the core text.

(b) Outline 5 of the 12 components of Operations Management 20 marks

Candidates should provide a description of 5 of the following 12 components of Operations

Management;

Location; Product development ; Forecasting; Layout of facilities; Process and system

performance; Inventory management; Material requirements planning; Just in time ;Quality;

Scheduling ; Purchasing; Maintenance

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SECTION B

Question 3

(a) The business functions are the actions performed by a department or person. The business

cannot operate without these or people carrying out the tasks related to these areas.

The main functional areas are Management (to plan and co-ordinate the business tasks), Human

Resources(to manage the employees and employment processes), Marketing (to identify the

customers and their needs), Finance (to ensure cash-flow) and Information Technology (to

support the business processes). 5 marks

(b) SWOT Analysis

Defining current position and objectives - is the organisation performing satisfactorily? Are

there opportunities it should be pursuing or weaknesses it should be concerned about?

External/Internal analysis – how will the organisation go about achieving its goals? What are

the factors within and outside the organisation that might help or hinder its performance?

Analysing gaps and matching capabilities - does the organisation have the human and material

resources to fulfil its objectives? Can it get them? Or are the objectives realistic?

Once an appropriate SWOT analysis has been undertaken, an organisation is in a position to

devise strategies to counter threats and weaknesses and to capitalise on opportunities and

strengths This form of analysis of the current situation, allows organisations to determine the

direction it should take, the resources it will need and the tactics, or parameters it should operate

within to achieve its objectives.

PESTLE Analysis

PESTLE analysis is a technique for analysing the macro-environment of an organisation under

the following headings – political economic, socio-cultural, technological, legal and

environmental.

Analysis of the political and legal environment involves considering the impact of changes in

requirements, safety regulations, consumer protection legislation, parties in Government, EU

developments and other factors.

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Consideration of key issues such as the levels of demand within the economy, interest rates,

foreign exchange, grants and inflation are indicative of the economic variables to be monitored.

The social-cultural environment encompasses issues of a demographic nature, such as in the

structure of the population – gender, income distribution, emigration and issue of a cultural

nature (such as, language, customs and religion).

The technological environment includes consideration of the threats and opportunities arising

from IT and scientific developments in various areas.

PESTLE analysis is an important part of the environmental scanning process which feeds in to

strategy formulation. 10 marks

(c) Environmental scanning is the process of collecting information to carry out a systematic

analysis of the forces affecting the company and identifying potential threats and opportunities

with a view to generating future strategies. 10 marks

The following are four objectives for the business to benefit from the process:

Detect trends and events important to the organisation

This helps the business to be more aware of the movements in the marketplace and who is

causing these changes. It will help the business understand the competition and ensure that the

business is correctly placed in the industry.

Define potential opportunities, threats or changes for the organisation implied by those trends

and events

This will ensure that the organisation’s goals and objectives change in order to develop and

grow the business. Potential opportunities are the basis for new product development and

service provision. If the business can identify opportunities, it can generate new business and

try to eliminate threats.

Promote a future orientation in the thinking of management and staff

This ensures that the organisation is always looking forward to maximise opportunities and

continue to satisfy customers.

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In addition, it helps ensure that the correct skills and abilities of management and staff are

updated and that the correct employees are appointed in the correct position to carry out the

business task. This should also ensure some flexibility in the organisation.

Alert management and staff to trends that are converging, diverging or interacting

This will improve the understanding of the market and maximise the use of resources that the

company has, or has access to, in order to follow the market.

This will have a significant influence on the processes, tasks and offerings the business can and

does provide to the market.

Question 4

(a) The main limitation of Maslow’s theory is that different people will place different

weightings on their needs, and will have different relationships between motivating factors and

their needs. For example, some people may see money as merely fulfilling a security need, and

will be happy to work to a certain level of wages and achievement.

In contrast, some people may see their earning power as a key part of their self-esteem, and will

work harder and harder if they are given the opportunity for increasing financial rewards. It is

also difficult for a manager to determine what need is driving an employee at any one time,

particularly as employees’ needs will often be affected by external factors such as their family

life and social life outside of work.

In addition, there is no empirical evidence to support Maslow’s hierarchy as applying to all

people, and there is evidence to support a different order of needs in many circumstances. For

example, people such as Ghandi and Mother Teresa sacrificed some of their security to help

others, hence achieving esteem and self-actualisation without fulfilling their security needs.

Also, many artists and actors will struggle by on minimum wages, with only minimum food and

security, in the pursuit of recognition and achievement within their chosen career.

There is also little evidence to support the argument that people focus on one need at once, and

will often consider many needs when making a decision. 5 marks

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(b) Adam’s equity theory (sometimes also referred to as ‘Justice Theory’) is built on the belief

that employees become de-motivated both in relation to their job and their employer, if they feel

as though their inputs are greater than the outputs. Employees can be expected to respond to this

in different ways, including: de-motivation, reduced effort and eventually becoming

disgruntled.

Inputs include all of the elements an individual puts into their job and includes: effort, loyalty,

hard work, commitment, skill, ability and enthusiasm.

Outputs, on the other hand, are what the individual receives as an outcome of their inputs. They

include variables such as financial rewards, recognition, reputation, responsibility, praise and

job security.

Equity theory asserts that positive outcomes and high levels of motivation can be expected only

when employees perceive their treatment to be fair. If the balance lies too far in favour of the

employer, some employees may work to bring balance between inputs and outputs on their

own, by asking for more compensation or recognition. 10 marks

Benefits:

Can help managers identify whether employees are generally satisfied or dissatisfied in job

situations;

Managers can analyse inputs against outputs and so implement strategies to increase motivation.

Limitations:

Model may be too simplistic in its delivery;

Doesn’t consider cultural or socio-economic variables.

(c) This theory identifies important expectations that individuals bring to the workplace and

focuses on the relationship between the effort put in and the expectations concerning the actual

reward. 10 marks

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Using Expectancy, managers can improve workers beliefs in their performance ability by

increasing training to improve skills, coaching, and increasing the worker’s sense of usefulness

through positive feedback.

Secondly, managers can be consistent in their application of rewards and positive feedback.

This is instrumentality in action.

Finally, using the valence principle, managers can learn what outcomes’ rewards are most

important and desired by employees and so provide them.

Focused, rather than random, rewards will increase workers’ motivation to put in the effort to

gain them.

Overall, no one framework can be used to deal with the complexities of reality but, in

appropriate conditions and circumstances, expectancy theory has a significant role to play in

contributing to motivation in work environments.

Expectancy Theory is still valid, but if you apply it at the ‘task level’, it is incomplete as a

conceptual framework for understanding human behaviour.

If you apply it at the ‘career level”, then it becomes a really powerful analytical tool that could

reveal insights about a person.

For example - can I become successful if I choose to pursue this career? If I become successful,

what’s my reward? Is the reward worth the effort, as well as the sacrifices that I might be called

upon to make?

Maybe that’s why some women quit full time employment after having children. They may re-

evaluate the ‘reward’ they get from competing in the workplace.

SECTION C

Question 5

(a) The Role of Demographics; The size and characteristics of a country’s population can have a

significant effect on what it’s able to achieve. Demographics, the characteristics of a population

used for purposes of social studies, can and do have a significant impact on how managers

manage. Demographic characteristics of concern to organisations include: age, income, sex,

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race, education level, ethnic makeup, employment status, and geographic location. Age is a

particularly important demographic for managers since the workplace often has different age

groups all working together, the Grey market; those born pre 1946 who are usually retired but

have considerable disposable income and want to spend it on supporting their next generation

families or on leisure. a) Baby Boomers are those individuals born between 1946 and 1964. The

sheer numbers of people in that cohort means they’ve had a significant impact on every aspect

of the external environment. b) Gen X is used to describe those individuals born between 1965

and 1977. This age group has been called the baby bust generation since it followed the baby

boom and is one of the smaller age cohorts. c) Gen Y (or the “Millennials”) is an age group

typically considered to encompass those individuals born between 1978 and 1994. As the

children of the Baby Boomers, this age group is large in number and making its imprint on

external environmental conditions as well. d) Post-Millennials—the youngest identified age

group, basically teens and middle-schoolers. One thing that characterises this group is that

“many of their social interactions take place on the Internet, where they feel free to express their

opinions and attitudes.” 10 marks

(b) The Globalisation process an organisation going global typically proceeds through stages as

shown below. The first step toward going international may start with global sourcing (also

called global outsourcing), which is purchasing materials or labour from around the world

wherever it is the cheapest. The next step may involve exporting - making products

domestically and selling them abroad. An organisation might do importing, or acquiring

products made abroad and selling them domestically. Both usually entail minimal investment

and risk. Licensing or franchising, involve one organisation giving another organisation the

right to use its brand name, technology, or product specifications in return for a lump sum

payment or a fee. This approach is used widely by pharmaceutical companies and fast food

chains. Direct investments may include: A global strategic alliance - a partnership between an

organisation and a foreign company partner or partners. Joint ventures are a specific type of

strategic alliance in which the partners form a separate, independent organisation for some

business purpose. These partnerships provide a fast and less expensive way for companies to

compete globally than they would do on their own. A foreign subsidiary is a separate and

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independent facility or office. The greatest commitment (and risk), occurs when the

organisation sets up a foreign subsidiary.

(c) Different types of Global Organisations? Multinational companies or MNCs are any type of

international company that maintains operations in multiple countries. Companies such as

Microsoft, Ford and Honda are examples.

Types of MNC’s:

A multidomestic corporation - decentralises management and other decisions to the local

country where it is doing business.

Transnational or borderless organisation - companies that use an arrangement that eliminates

artificial geographical barriers. IBM reorganised into industry groups.

Global Corporation - centralises its management and other decisions in the home country.

5 marks

Question 6

(a) Explain the term Corporate Governance (5 marks)

Corporate governance is concerned with the structures and systems of control by which

managers are held accountable to those who have a legitimate stake in an organisation.

It is the system of policies, practices and processes by which a company is directed and

controlled. Corporate governance essentially involves balancing the interests of the

many stakeholders in a company – these include its shareholders, management,

customers, suppliers, financiers, government and the community.

(b) Write an explanatory note on any TWO (2) of the following;

o Governance Initiatives for Irish SMEs

o Some Corporate Governance issues a CEO of Irish SME needs to consider

o The Irish Corporate Governance Annex

o Corporate Governance standard for the civil service & CG framework

(2 x 10 marks)

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The Irish Corporate Governance Annex

Introduction

The ISE recognises that the UK Corporate Governance Code (formerly the Combined Code)

has set the standard for corporate governance internationally. It is regarded as being the pre-

eminent corporate governance code and is widely emulated. Since the 1995 Irish Stock

Exchange Act, the Listing Rules of the Irish Stock Exchange have required every company

listed on the Main Securities Market to state in its annual report how the principles of the

Combined Code have been applied and whether the company has complied with all relevant

provisions. Where a company has not complied with all relevant provisions of the UK

Corporate Governance Code (the ‘UK Code’) it is required to set out the nature, extent and

reasons for non-compliance.

The Irish Corporate Governance Annex (the ‘Irish Annex’) is addressed to companies with a

primary equity listing on the Main Securities Market of the Irish Stock Exchange (‘ISE’). The

Irish Annex implements the nine recommendations arising from the report commissioned by the

ISE and IAIM in early 2010. The Irish Corporate Governance Annex also includes

interpretative provisions for companies that are of an equivalent size to companies that are

included in the FTSE 100 and FTSE 350 indices.

Where a company does not comply with a provision of the UK Code or the Irish Annex

but actively intends to do so in the future, it should as part of its explanation provide an

indication of how and when it will comply.

Where a company has decided not to implement a particular provision it should clearly

outline its rationale.

Companies should provide meaningful descriptions of how they apply the provisions of

the UK Code and the Irish Annex.

Companies should move away from the practice of recycling descriptions that replicate

the wording of the UK Code or Irish Annex’s provisions and provide informative

disclosures that will provide shareholders with greater insight into the company and the

environment in which it operates.

Companies should also avoid the practice of copying wording contained in the

corporate governance disclosures year on year as this practice does not reflect

compliance with the spirit of the UK Code or the Irish Annex.

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Specific Provisions

Board Composition; some key requirements

Outline the rationale for the current board size and structure, explaining why the

company believes it to be appropriate and provide details of any planned or anticipated

changes to the board size or structure;

The section of the Annual Report including the Directors’ biographies should include:

-The date of appointment of each director, the length of service of each director as a

director and, where applicable, the length of service of each director on a board

committee;

- A detailed description of the skills, expertise and experience that each of the directors

brings to the board;

Board Appointments; some key requirements

Companies should include an explanation, for each new appointee, of the process followed by

the nomination committee in identifying a pool of candidates and selecting and recommending

the candidate. Where the company has used external search agencies and advertising to identify

candidates this fact should be made clear in the Annual Report or issuers should provide an

appropriate negative statement.

Board Evaluation

Companies should in the Annual Report:

State the objective and scope of the evaluation review, the methodology applied and the

rationale for this methodology;

The statement should also specify when the most recent externally facilitated

performance evaluation was undertaken, if applicable, or when the board expects to

engage an external facilitator

Board Re-election Companies should in the Annual Report: some key requirements

State the board’s general policy for board renewal;

Audit Committee

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Companies should include a meaningful description of the work carried out by the audit

committee during the financial year.

The description should, in particular, explain the work done by the Committee relating

to the oversight of risk management on behalf of the board.

Remuneration

Companies should provide a clear and meaningful description of their remuneration

policy

Where the remuneration policy includes variable components of remuneration,

companies should describe the components of bonus or other variable elements of

remuneration and disclose what components of variable compensation are deferred and

for how long.

http://www.ise.ie/Products-Services/Sponsors-

The%20Irish%20Corporate%20Governance%20Annex-Advisors/Irish-Corporate-Governance-

Annex.pdf

Corporate Governance standard for the civil service

A Corporate Governance Standard for the Civil Service is now in place. This Standard is to be

used by each Department and Office to guide the development of their individual Governance

Frameworks. This is the first time that such a Standard has been produced for the Civil Service

as a whole.

Good governance is central to the effective operation of Government Departments. It is vitally

important in effectively discharging their statutory and policy obligations. It ensures that a

framework of structures, policies and processes are in place to deliver on these obligations and

it allows for an objective assessment of management and corporate performance.

The Standard sets out a summary of good governance principles, and an adaptable Governance

Framework including provisions to be used in documenting each Department’s own

http://www.per.gov.ie/wp-content/uploads/Corporate-Governance-Standard-for-the-Civil-Service-November-2015.pdf

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arrangements. Departments and Offices are now to document and publish their governance

arrangements in accordance with the principles set out in this Standard.

The Civil Service Renewal Plan commits to strengthening Corporate Governance in the Civil

Service in line with international best practice. This is being achieved by the introduction of the

Corporate Governance Standard for the Civil Service.

Corporate Governance framework for the Civil Service

The Governance Framework of the Department of Public Expenditure & Reform implements

the Corporate Governance Standard for the Civil Service. The chapters of the Framework are

set out in five sections that reflect the Governance Standard and its five governance principles,

which are:

1. Good governance supports a culture and ethos which ensures behaviour with integrity, a

strong commitment to ethical values, and respect for the rule of law.

2. Good governance helps to define priorities and outcomes in terms of sustainable

economic and societal benefits and to determine the policies and interventions

necessary to optimise the achievement of these priorities and outcomes. It means

implementing good practices in transparency, reporting, communications, audit and

scrutiny to deliver effective accountability.

3. Good governance means developing the Department’s capacity, including the capability

of the leadership team, management and staff.

4. Good governance means managing risks and performance through robust internal

control systems and effective performance management practices.

5. Good governance ensures openness, effective public consultation processes and

comprehensive engagement with domestic and international stakeholders.

The document is intended as a guide to everyone in the Department, and to the people they

serve, on how they do their work and why they do it in the way they do. It sets out the

standards of conduct, their values and the governance systems, particular to the public sector, by

http://www.per.gov.ie/en/civil-service-renewal/

http://www.per.gov.ie/wp-content/uploads/DPER-Governance-Framework-3-4.pdf

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which they operate. Therefore, its purpose is to draw together what they should do and what

they must do in conducting their business.

A key objective for this Governance Framework is to ensure that it evolves so that they can

better adapt to social, political, environmental and economic changes. The Framework will,

therefore, demonstrate continuous improvement and development.

Governance Initiatives for SMEs

Corporate governance may not be first on the list of priorities for most companies. Yet by

implementing governance frameworks, SMEs can make their business more resilient and better

able to anticipate risks and changing circumstances in the year ahead, which in turn, can help to

generate real business benefits and improve performance.

There are a number of governance initiatives that can offer significant value for a business. It is

not expected that all would be implemented at once, but rather as the needs of the business

demand, enabling companies to start small, with minimal investment, and continue to build

incrementally.

Governance step-by-step

1. Create a single document that outlines your company’s strategy

2. Separate board meetings from management meetings

3. Add a non-executive director to your board and formalise the role of chairperson

4. Establish an audit committee and give it a formal role distinct from management. Under

the Companies Act 2014, private companies meeting certain size criteria (turnover

>€50m and total assets >€25m) are required to establish an audit committee

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5. Document the managing director’s key responsibilities, linking remuneration to long-

term performance and ensuring there is a succession plan in place

6. Put in place a risk management process that identifies, categorises and assigns

responsibility for all major risks and review regularly

7. Review management and financial information to assist with key decisions

8. Create a flowchart for business processes, adding narrative explanations where

appropriate; identify the risks related to the processes and the controls that mitigate

those risks

9. Implement an internal audit function to review critical processes and ensure internal

controls

10. Collate all company policies into a single policy database, making sure it is

comprehensive, clear and properly communicated to all staff and stakeholders

The priority of each of these initiatives will be influenced by the size of the company – for a

medium to larger sized company, the complexity and scale of business processes should

increase the emphasis on risk, internal control and internal audit.

Some CG issues a CEO of an Irish SME needs to consider

The term Corporate Governance refers to the system or framework by which companies are

directed and controlled. The Board of Directors is responsible for the governance of the

company. There are lots of guidance and codes of best practice available in the public domain

on the subject both from a legislative and non legislative point of view, www.odce.ie is just one

good reference point.

Transparency, disclosure, accountability and fit for purpose are terms commonly associated

with good corporate governance framework. The degree to which company's observe the basic

principles of good corporate governance is an increasingly important factor for bankers,

shareholders, prospective investors, and employees, and even customers and suppliers. It is

http://www.odce.ie/

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ultimately the board of director’s responsibility to ensure stakeholder’s interests are protected

and that the company is operated in a fitting manner. If for example a company is trading whilst

insolvent it is the directors who may ultimately be held personally responsible depending on

circumstances of the case.

It is when SME’s start to look for outside funding that the makeup of the board and how they

operate is really scrutinised. If the company is not run effectively and in accordance with best

practice the board is leaving itself open to challenge and disagreements.

Some pointers for SME boards are:

Boards should be fit for purpose in view of the business and challenges that lay ahead. The

directors should have appropriate experience and have the necessary skills between them to

deliver success. There should be set protocols for identifying and selecting new board members.

Board members should be able to commit themselves effectively to their responsibilities.

Board members should always act in the best interest of the company and the shareholders as a

body.

Proper functioning boards will hold regular board meeting’s, prepares agendas, document and

circulate board minutes.

Boards are responsible for preparing, reviewing, and guiding corporate strategy to ensure the

long term success of the business and ensuring all stakeholders know exactly what direction the

company is going in. This includes outlining major plans of action, risk policy, annual budgets

and business plans; Every board should have a strong professional chairman who can guide and

direct the board.

Effective monitoring of the CEO and management. Selecting, compensating, monitoring and,

when necessary, replacing key executives and overseeing succession planning.

Setting performance objectives; monitoring implementation and corporate performance; and

overseeing major capital expenditures, acquisitions and divestitures

Ensuring the integrity of the corporation’s management reporting, accounting & financial

reporting

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systems, including the independent audit, and that appropriate systems of control are in place, in

particular, systems for risk management, financial and operational control, and compliance with

the law and relevant standards.

Board members should have access to accurate, relevant and timely information. Ignorance is

no defence when it comes to looking back on who knew what. If you’re a board member it’s

your responsibility to get access to the information.

Accountability to shareholders such as holding of AGM and EGM where necessary and

informing shareholders of key events in the business. Remember basic shareholders rights

should include access to relevant and material information on the company on a timely and

regular basis, and

electing and removal of members of the board;

Where there are external shareholders involved there should always be a shareholders

agreement in place, even if it’s only two friends who set up a company together. In a

very tough economic environment there is increasing amounts of fall outs between

directors and shareholders in SME’s. The shareholders agreement is often left or

forgotten about to the long term detriment of the company.

When considering the makeup of the board SME’s should consider what outside

expertise they need to bring to the board. This can often be quite a challenge given the

limited resources SME’s often find themselves in. However increasingly more and

more SME’s are looking to outside or non executive directors. These are directors who

are seen as independent and can give guidance on certain critical areas within the board

i.e. strategy, finance, human resource, technical, industry expert, legal etc, depending

on the company and its requirements. Non executive directors can add hugely to the

overall success of the company for little investment.

SME’s have varying degrees of success in adhering and implementing good corporate

governance. In general SME’s don’t pay enough attention to it, with a perception that corporate

governance is only applicable to larger entities. SME’s that do pay more attention to corporate

governance tend to be the better run and more successful company's.

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(Patrick Sutton, O’KellySutton)

The Role of Directors & the Board in Charity and Not-For-Profit Organisations

The key purpose of a board of directors is to ensure an organisation’s prosperity by collectively

directing the organisation’s affairs while meeting the appropriate interests of its shareholders

and other relevant stakeholders, and complying with all necessary legislation and regulation.

High standards of governance, transparency and accountability are expected of all

organisations, with charity and not-for-profit organisations being no exception. Even though a

board may serve on a voluntary basis, the directors, officers or trustees of charitable and not-

for-profit organisations are obliged to make themselves aware of the organisation’s obligations

and to ensure that it operates effectively and efficiently and that they behave with integrity.

Legislation does not distinguish between those directors who are volunteers and those who are

remunerated, with the same duties and responsibilities applying in terms of compliance with

corporate governance requirements and legislation, such as the Companies Act 2014 and

Charities Act 2009. A key aim of the Charities Regulatory Authority (CRA), which was

established in October 2014, is to increase public trust and confidence in the management and

administration of charitable trusts and charitable organisations, and to promote compliance by

charity trustees with their duties in the control and management of organisations. Boards of

charitable and not-for-profit organisations also have a role to play in contributing to the wider

re-building of trust in Ireland’s not-for-profit sector by employing and practicing the highest

standards of corporate governance, relevant to the size of their organisation.

Good governance practices will not only increase transparency by informing the public and

funders about how the organisation is being run, but will also contribute to managing risks to

the organisation, achieving goals and optimising the use of all resources.

The changing environment - the demand for more transparency in the not-for-profit

sector

Ireland’s not-for-profit organisations must respond to the greater public expectation for

transparency by ensuring that easily accessible information is available publically on how the

organisation is governed, including publishing its annual report, and listing names of board

members Not-for-profit organisations need to be able to justify the value they create in terms of

outputs, versus the inputs of salaries and administration costs.

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Organisations also have a key role to play in aiding public understanding of the costs associated

with fundraising and administration Any person who consents to act as a director or officer of

an organisation must be aware that they undertake onerous duties and responsibilities, and that

legislation does not distinguish between directors and officers who are volunteers and those

who are remunerated – the same duties and responsibilities apply It is the organisation’s

responsibility to ensure that it identifies and complies with all relevant legal and regulatory

requirements e.g. the Companies Act 2014, the Charities Act 2009

Getting the board right - composition, skills, diversity & rotation

Boards should be structured so that they provide a balance, not only in terms of skills and

experience but also with respect to age, gender, ethnicity, background and physical abilities.

The constitution of an organisation should be regularly reviewed to ensure that there are

provisions in place to encourage diversity of board membership.

There should be an open and transparent process of appointment for new board members and

board members should fully understand their duties and responsibilities and have a clear

expectation of the time commitment that will be required, before accepting the role Boards

should regularly examine the procedure for the rotation of various positions to allow for the

introduction of new board members.

There should be an established ethos within the organisation of board renewal Identify any

weaknesses on your board, for instance, a skills gap or lack of expertise with regard to corporate

governance. Such weaknesses, once identified, can be easily addressed through appointing

directors who possess the required skills and through the provision of suitable training for board

members, in line with the size and complexity of the organisation

Getting the most from your board

The role of the board will vary depending on the size of the not-for-profit organisation, however

certain matters must be addressed by the board, regardless of size:

- Defining the mission statement, ethos and constitution of the organisation

- Developing a high ethical standard within the organisation and ensuring that everyone

involved acts with integrity at all times

- Encouraging a culture of openness, responsiveness and accountability

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- Developing a strategic plan - Safeguarding the organisations’ assets

- Monitoring the efficient use of resources

- Financial planning, including liaising with fund providers and identifying new sources of

funding

- Encouraging the best possible service provision in line with the constitution of the

organisation

- Ensuring compliance and keeping up-to-date with changes

- Setting the risk appetite for the organisation

- Communicating with stakeholders and the public and being open and accountable.

It is essential that all board members demonstrate active commitment and participate fully at

board meetings. Board members must also have a clear understanding of the role and the

responsibilities, demonstrate leadership qualities and the ability to constructively challenge

other board members and the CEO

Keeping the board focused – strategy and risk

The board should develop a strategic plan for the organisation and monitor and evaluate this

plan annually, with the CEO. The performance of the organisation should also be assessed and

monitored against the strategic plan. KPI’s should be developed for the achievement of the plan

and for evaluating management’s performance

Sustainability is the greatest risk facing most not-for-profit organisations. Organisations need to

balance managing operations effectively and efficiently while also ensuring compliance with

legislation and corporate governance requirements so that sustainability is not jeopardised.

Effective risk management is integral to good organisational management and all organisations

should undertake a risk assessment which is aligned to the strategy of the organisation, on a

proportionate basis.

Key questions all boards should be asking:

- Where does organisational funding come from and what are the factors which would cause it

to decrease?

- What are the essential resources needed to continue to operate?

- What are the reputational risks to the organisation?

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- What legislation should the organisation be complying with and what procedures are in place

to ensure compliance?

- What plans are in place for board rotation and succession?

- What would cause a decrease in volunteer numbers?

- Are the demands for the service increasing and what plans are in place to meet these demands?

- What controls are in place to ensure that all expenditure is approved and valid?

Larger organisations should undertake more detailed risk assessment procedures, focusing on

the four key areas of strategy, operations, reporting and compliance Organisations in receipt of

HSE funding must ensure compliance with the HSE Code of Governance and registered

charities will need to ensure compliance with the Charities Act 2009. Organisations involved in

fundraising should ensure compliance with the Statement of Guiding Principles for Fundraising

Risks reviews and risk registers should be updated annually

Restoring credibility - top governance priorities for the not-for-profit sector

Where relevant, organisations should ensure that they have completed their entry on the CRA’s

Register of Charities and submitted their Annual Report Organisations themselves can

contribute to restoring credibility by encouraging and improving on best practice operations

including:

- Reviewing current governance practices and identifying areas for improvement

- Increasing transparency by informing the public about how the organisation is run

- Adopting the Governance Code for Community and Voluntary Organisations, if not already in

place

- Ensuring that the board selection process is formalised, with adequate regard for skills

requirements, training and board rotation

- Training – ensuring that all board members are fully aware of the responsibilities associated

with their role and receive adequate induction and training opportunities

- Identifying major risks to the organisation and determining ways of managing those risks

Total: 25 Marks

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