Dearn

There are 2 types of External environment

1. Country environment – Also known as Macro environment, general environment

a. P – Political – Government does not have much influence on Dearn as the company is not listed. The
company does however have to abide by the corporate governance rules.
b. E – Economical – Economic growth has slowed down, there might be an economic downturn and
probable a recession in Lucland
c. S – Social – Lucland is a developed nation, with improving standards of living as more people have
disposable income
d. T – Technological – The company uses both types of production, mass manufacturing and hand crafted
which require significant investment in the plant and machinery as well as skilled workers. Technology
plays a huge role in keeping up with trends in the market in order to avoid having obsolete products in
the market.
e. E – Ecological – Using plastic as a synthetic material in manufacturing might be an issue, waste of
Lucland, lack of innovation to reduce the waste on the company’s part may affect sales and growth
hence the future of the company as well. Pollution from the manufacturing might be an issue as well
f. L – Legal – Is compliant with most of the rules and regulations, will have to read again though

Overall conclusion / points – Favourable or unfavourable circumstances, Impact of the above, overlapping
points

2. Industry environment – Also knows as Micro environment, competitive environment

a. Porter’s 5 Forces – MENTION HIGH OR LOW
i. Power of the customer – The customers are mostly local to Lucland as only 15%
of Dearn’s sales are made to export sales, and most of those are handcrafted
shoes only. Customers might be willing to pay a premium for the handcrafted
sales as we see Parrish charges a higher price for their handcrafted shoes.
Dearn’s target is also only from 30 – 50-year olds. Maybe this could be changed
so as to increase the number of sales made as more and more adults have been
joining the job markets and could lead to increased revenues. The fact that the
company does not have a niche in the product could be reason for their slow
growth. They do not have one brand that they do focus on and this leads them
to spreading themselves too thin in trying to reach every market. Maybe a
decision could be made to discontinue a type of product that is not making
significant margins or is even making losses and then focus on the high margin
products and increasing the investment, such as time and money, in improving
the product.
ii. Power of supplier – No information on the supplier given.
iii. Threat of competition –
iv. Threat of New entrants – Kind shoes, Barriers to entry if any
v. Threat of substitute products – High due to new sustainable products that can
come up
3. Strategic Position Analysis
a. Macro / Country Environment
b. Micro / Industry Environment
c. Internal Factors
i. Human Resource – Experience, expertise, management competencies
ii. Financial Resource – Profitability, financial position or gearing
iii. IT / Brand – Goodwill, Online or website
4. Suitability Feasibility Acceptability (SFA) Framework
a. To use model is acquisition is being made or thinking of it
i. Suitability – External Factors, Home country, Target country and Target company
ii. Feasibility
1. Internal Factors - No acquisition experience from the past as it is a family owned
business, Experience in managing similar businesses, no experience in working in
overseas countries
2. Financial Resource – Enough funds to acquire another company, Looking at gearing
ratio, cost benefit analysis
3. Technology and Brand – If we have the technology or not to make the acquisition, and if
the company has already established a brand name in other countries through the
exports they have been making
iii. Acceptability – Focus on the financials of the target company
1. Will the shareholder accept proposed strategy – If the company is private owned, then
acceptable, however if the company is a listed company, the shareholders will accept if
it has a positive or reasonable NPV
2. If the target company is based in another country, we have to consider cultural
differences
3. Review financial projections / analysis
5. SWOT Analysis
a. Strength and Weaknesses are internal
b. Opportunity and Threat are external
6. TOWS Matrix – Just SWOT in a table tackling the other

7. Corporate Parenting and Portfolio

a. Parent with many subsidiaries
i. Industry status – Growth, maturity and decline
ii. Market share – Increase, maintained or declined
iii. Profit margin - Increase, maintained or declined
iv. BCG Assessment – Star, Cash Cow, Dog and Question Mark
v. Strength / Weakness and primary reason for acquisition
8. Ansoff Growth Matrix

9. Harmon’s Process Matrix

10. Mendelow’s Stakeholder Matrix

11. Culture Web Model (Analyse Culture)
i. Power structure - Study of the Leader of the organization – His personality, style and habits
ii. Organizational Structures – Structure of the Board, NED and ED, Structure of the overall
organization, tall or flat
iii. Control systems – Is the organization cost or quality focused, performance management &
reward system
iv. Rituals and Routine – Daily routine of the organization, Office timings, long working hours,
punctuality, strictness, leaves
v. Symbols – Show off, status symbols, benefits, symbols of power
vi. Stories – History of the organization, Heroes and villains
12. Context of change Model
a. Scope - When there is a change in the model, small change (realignment) or big change
(transformation)
i. Small change will generally be accepted
ii. Big change – Will require extensive planning and transformation
b. Reason – Reason for the change / justification
c. Timing – When the change will be implemented, big bang or incremental
d. Capacity or Resources – Have the required resources for the change, HR, FR and technology
e. Capability – Have experience on the same or first time
f. Power – Does the change manager have sufficient power and authority to implement decisions
g. Preservation – Strengths from the “existing environment” is retained
h. Readiness – Will the employees accept the change
i. Resistance – Who will resist the change, how to handle
13. Risk Management Strategies – TARA Model
a. Transference – Transfer the risk to a third party, insurance, outsourcing or franchising
b. Avoidance – Eliminating risk by totally avoiding activities which cause risk
c. Reduction – Reduce the impact and probability of the risk implementing controls
d. Acceptance – Accept the consequences of risk, should it happen. Normally adopted for small risks

14. Financial Ratios – Give reasons for variances

 a. P&L Ratios
i. Sales trend
ii. Gross profit margin
iii. Net profit margin
iv. ROCE
b. Balance Sheet Ratio
i. Current Asset Ratio
ii. Gearing ratio
iii. Interest cover
c. Efficiency Ratio
i. Revenue per employee
15. Financial Projections – If projections are given regarding a proposed investment, must check / mention the
following
a. Projections are based on DCF
b. Simple payback using the pre-discounted cash flows
c. Review assumptions
d. Mention tax implications needed to consider
e. Mention sensitivity analysis needs to be done
16. Financing Structure – Purpose, amount and duration
a. Equity Financing
i. Cost linked with profitability – Dividend paid out if company makes profit
ii. Dilutes existing shareholding pattern
iii. No collateral is required
iv. No effect on gearing level
v. May affect the culture or strategies of the company due to presence of outsiders
b. Debt Financing
i. Cost is fixed
ii. Does not affect ownership or culture of the business
iii. Requires collateral
iv. Affects gearing level
17. Budgets / MIS
a. If actual and budget is given, need to flex the budget
b. Compare actual with
i. Flexed budget or;
ii. Prior year actuals
c. Reasons for the variances should be given
18. Project Management – One off special activity other than the usual operations of the company
a. How to track a project

b. Contents of a Project Initiation Document – Presented to the BOD

 i. Background / introduction
ii. Project scope / Object
iii. Cost Benefit Analysis
iv. Key Stakeholders
1. Project sponsor
2. Project manager
3. Project team
4. User or concerned departments
5. Customers
6. Suppliers
7. Government
8. Society / community
v. Project duration / timelines
vi. Project risks eg Quality, timeline and costs
vii. Project constraints eg Human resource, financial resource and technical resource
viii. Major assumptions used
ix. Project monitoring and reporting procedures
19. E Business – Doing business using internet technologies, eg websites, emails and apps
a. Advantages
i. No geographical limitations
ii. More revenue
iii. Lower costs as less physical locations and fewer staff
iv. Customer convenience
v. Improved marketing
b. Disadvantages
i. Not all customers use internet
ii. Start up costs are high – Hardware, software and license, website development costs, IT staff,
Integration with current systems
iii. Security risks – Hacking, Cyber frauds or crime, Data Protection
iv. Legal complication due to globalization, follow international laws or laws applicable to the
specific country
v. Redundancy costs
20. E Marketing – Using internet technologies to do marketing
a. Tools of E Marketing – Search Engine Optimization, Social Media, websites, Online discounts,
Blogs/forums/influencers, Online news letters, Link to related websites
i. Advantages
1. Global reach
2. Lower cost
3. 24 hour marketing
4. Personalized marketing
ii. Disadvantages
1. Limited marketing
21. Big Data – Refers to extremely large collections of data (unstructured) that may be analysed to reveal trends,
patterns, especially relating to customer behaviour and patterns. Characteristics below:
a. Volume
b. Variety
c. Velocity
d. Veracity
i. Advantages
 1. Deeper insights to data
2. Better marketing and pricing strategies
3. Improved customer service and relationship
4. Increased competitiveness
5. Development of customized / personalized products
6. New sources of revenue
ii. Disadvantages
1. Data security / leakage
2. Data storage and management issues – Hardware and software
3. Costly
4. Legal issues or regulation issues
22. Customer Relationship Management – Software to maintain relationship through regular communication with
customers electronically

a. Advantages
i. Better interaction with customers, communication with customer
ii. Marketing and relationship building – emails, notifications, personalized messages
iii. Sales management – Inquiries, order placing, order tracking and auto payments
iv. After sales service – Feedbacks, complaints, reminders, FAQs
v. Analysis – Trend, data mining, intelligence, big data
b. Disadvantages
i. High costs to maintain
ii. Data security
iii. Data laws
23. IT Risk and Security
a. IT Security is important because
i. Business disruptions
ii. Reputational issues
iii. Loss of customers hence revenue hence market shares
iv. Legal cases by customers
v. Regulatory fines eg breach of DPA
vi. Incorrect decision making based on erroneous data
CORPORATE GOVERNANCE TOPICS
24. Professional Code of Ethics – Issued by professional bodies
a. Integrity
b. Objectivity
c. Professional Competence and Due Care
d. Confidentiality
e. Professional Behaviour
25. Public Interest – Protect public interest in addition to shareholders’ interest
a. Employees
b. Customers
c. Suppliers
d. Society / Community
26. Corporate Code of Ethics – Issued by organizations

27. Chairman and CEO – Listed companies have to be split into two, Family owned can be the same person
a. Chairman – Should be independant
i. Role – Run the board
1. Is the link between shareholders / stakeholders and company
2. Communicate with the shareholders (Annual Report)
3. Protect shareholders interest and increase long term shareholder wealth
4. Ensure smooth running of the board such as
a. Appropriate size, knowledge, skills, experience and independence of directors
b. Balance between executive and non-executive directors
c. Effective functioning of Board Committees
d. Regular meetings
e. Director’s nomination, performance and remuneration
b. CEO
i. Role – Run the company
c. Advantages of splitting the role
i. Segregation of duty leading to improved governance
ii. Chairman is able to challenge the CEO
iii. Other directors / employees can communicate with the chairman in case of concerns with the
CEO
iv. Higher shareholder confidence as chairman is normally a NED
d. Disadvantages
 i. Chances of disagreement between the CEO and Chairman
ii. Chairman may not have in depth knowledge of the business
28. Non-Executive Directors
a. Are Independent Directors, get a fixed fee for being NEDs, no bonus or share options as it creates
conflict of interest and threaten independence
i. Role
1. Discuss strategies, bring external experience and leadership
2. Scrutinize the performance of the Executive Directors
3. Ensure effective internal control and risk management systems are in place and financial
reporting is accurate and reliable
4. Nomination, remuneration and succession planning of executive directors and senior
executives, providing added comfort to shareholders
ii. Advantages
1. Brings independence / adds confidence to shareholders
2. Having external experience and wider perspective
3. Scrutinize / challenge performance of CEO and ED
4. Employees can discuss confidential or sensitive matters with the NED directly – Whistle
blowing
5. Company can comply with regulatory / listing requirements
iii. Disadvantages
1. May lack independence
2. Smaller remuneration as compared to ED (no incentive)
3. May not give sufficient time to business
29. Board Committees – Sub committees of the Board
a. Nomination Committee – Majority should be NEDs
i. Decide the size of the board
ii. Ensure sufficient knowledge, skills and experience is available
iii. Balance between NED and ED
iv. Appointment of new Directors
v. Training and Succession planning
b. Remuneration Committee – 100% NEDs
i. Decide remuneration policy or package
ii. A portion of pay is linked with performance
1. Bonus
2. Share options
c. Audit Committee – 100% NEDs with at least one member having recent expertise in finance and audit
i. Review Financial statement and internal controls
ii. Liaise with external auditors
iii. Supervise internal audit
iv. Whistle blowing arrangement
d. Risk Committee – Majority NED
i. Implement risk management processes / ERM framework
ii. Embed risk management in Organization’s structure
iii. Identify key risks and recommend controls
iv. Ensure internal controls are working effectively
e. Importance of having Board Committees
i. More focused and specialized
ii. More time can be spent by committees as full board has limited time
iii. Board can focus more on business matters
 iv. Higher involvement by NEDs
v. Increase shareholder confidence
30. Remuneration & Reward of Directors
a. General principals
i. Remuneration should be sufficient to attract, retain and motivate competent directors
ii. Remuneration should be linked with performance
1. Fixed Pay
2. Variable pay – Bonus or share options (long term of short term)
iii. Director cannot approve his own remuneration – To be done by Remuneration Committee
31. Insider Trading – Means buying or selling of company shares by its own directors or senior executives based on
information that is not publicly available yet. Why not allowed:
a. Directors have to act in the interest of the shareholders and not personal gains
b. Directors have to maximise long term value of the organization. Insider trading leads to temporary and
personal gains in the short term
c. Can damage reputation and integrity of the capital markets in the country
32. Family Owned Vs Listed Companies
a. Main Differences
i. More corporate governance in listed companies
ii. Role of the Chairman and CEO are split
iii. Sufficient number of NEDs in listed company
iv. Board committees
v. Board is accountable to external shareholders
vi. Decisions are based on voting rights not one person
vii. Director’s remuneration is based on performance
viii. Whistle blowing arrangements present
33. Integrating Reporting / 6 Capital – Differences:
a. Financial statements
i. Focus on financial information
ii. Focus on historic performance
iii. Focus on share capital
iv. Less emphasis on social and environmental aspects
v. Short term / annual results
b. Integrated Reporting
i. Focus on overall business performance
ii. Focus on future strategies
iii. Focus on 6 capitals
1. Financial Capital – Overall financial performance of the company, sources of funds and
strategies
2. Manufactured Capital – Tangible assets, NCA and CA
3. Intellectual Capital – R&D and innovation, Brand, Patents, Technical and R&D staff
4. Human Capital – Employee matters – Knowledge, skills and experience, Productivity and
efficiency, Staff turnover, Staff satisfaction surveys
5. Social Capital – Relationship and trust built with key stake holders i.e customers,
suppliers, society and government
6. Natura Capital – Environmental matters – Use of scarce resources, CO2 emissions,
Recycling and pollution
iv. Integrates social and environmental aspects in strategies and decision making
v. Long term value creation
Advantages
  Voluntary disclosure – Enhances an organization’s image and reputation for
transparency
 Effective communication with stakeholders
 Demonstrate how organization creates value
 Integrates social and economical aspects in strategies and decision making
 Focuses on the 6 capitals of the business
 Better understanding and decision making by shareholders, stakeholders and
potential investors
 Attracts investments at a lower cost of capital due to availability of greater
information
 Gives competitive edge over other companies

Disadvantages

 Too much commercial information / strategy is disclosed

 Valuation of the 6 capitals is subjective in nature
34. Environmental Footprint
a. Natural resources – Depletion of scarce resources
b. Waste Products – Disposal of waste products, recycling, environmentally friendly packing
c. Pollution – Carbon footprint, CO2 emissions, Recycling, Pollution, Spillage
35. Risk Management – Risk is any future incident which can cause damage or harm to the company. Risk
management are activities undertaken to avoid or reduce the risks. Give recommendations by reading the risks
carefully and reverse it to arrive at recommendation
a. Key Risks:
i. Business / strategic risk
ii. Financial risk
iii. Liquidity risk
iv. Credit risk
v. Foreign exchange risk
vi. Interest rate risk
vii. Market risk
viii. Market share / Competitive Risk
ix. Political Risk
x. Legal and compliance risk
xi. Environment risk
xii. Reputation risk
xiii. Health and safety risk
xiv. Technology risk
xv. Operation risk
xvi. Intellectual risk
b. Why risk varies
c. Risk diversification
i. Product diversification
ii. Industry diversification
iii. Geographical diversification
d. Risk Management Process
i. Commitment from top management (Board)
ii. Create a formal risk committee at Board Level
iii. Risk Assessment
1. Make a list of the risks that the organization faces
2. Analyse the impact and likelihood
3. Prioritize risk based on the above
4. Plan mitigation actions using heat maps or TARA model
5. Prepare a risk register
iv. Risk Register

e. Advantages of Risk Committee

i. More focus and specialized
ii. More time can be spent
iii. Board can focus on more strategic matters
iv. Higher involvement of NEDs
v. Higher shareholder confidence
f. Risk management – 4 Line of Defence
i. 1st Line of Defence – Employees – Proper policies and procedures in place, training given,
regular performance evaluation, reward and punishment
 ii. 2nd Line of Defence – Managers – Supervise employees, Review and monitor their performance
in larger organizations
iii. 3rd Line of Defence – Internal Audit – Objective review and assessment of risk management
activities, having good knowledge of organizations internal controls and systems, may not be
100% independent
iv. 4th Line of Defence – External Audit – Fresh Pair of eyes, have external or wider industry
experience
36. Internal Controls

37. Internal Audit – Is an assurance function within the organization to ensure that governance process, risk
management and internal controls are working effectively.
a. Roles:
i. Reviewing risk management procedures
ii. Evaluating internal control systems
iii. Reviewing accounting controls and reporting
iv. Reviewing operational efficiency and effectiveness
v. Reviewing legal compliance
vi. Special investigations or assignments eg fraud investigation
b. Factors to decide whether an organization needs an internal audit department
i. Any legal requirement to do so
ii. Size, complexity and growth of the organization
iii. Risk levels
iv. Number of employees
v. Geographical dispersion
vi. Centralized or decentralized set up
vii. Quality of systems and internal controls
viii. High frequency of breaches and frauds
ix. Cost benefit considerations