Shape Enterprises Co (Shape) has been trading for 15 years selling insurance and has recently become a listed company. In accordance with corporate governance principles Shape maintains a small internal audit department. The directors feel that the team needs to increase in size and specialist skills are required, but they are unsure whether to recruit more internal auditors, or to outsource the whole function to their external auditors, Yellow & Co. Shape is required to comply with corporate governance principles in order to maintain its listed status; hence the finance director has undertaken a review of whether or not the company complies. Will Wade is the chairman of Shape, until last year he was the chief executive. Will is unsure if Shape needs more non-executive directors as there are currently three non-executive directors out of the eight board members. He is considering appointing one of his close friends, who is a retired chief executive of a manufacturing company, as a non-executive director.
The finance director, Emily Wong, decides on the amount of remuneration each director is paid. Currently all remuneration is in the form of an annual bonus based on profits. Emily is considering setting up an audit committee, but has not undertaken this task yet as she is very busy. A new sales director was appointed nine months ago. He has yet to undertake his board training as this is normally provided by the chief executive and this role is currently vacant.
There are a large number of shareholders and therefore the directors believe that it is impractical and too costly to hold an annual general meeting of shareholders. Instead, the board has suggested sending out the financial statements and any voting resolutions by email; shareholders can then vote on the resolutions via email.
(a) In respect of the corporate governance of Shape Enterprises Co:
(i) Identify and explain FIVE corporate governance weaknesses; and
(ii) Provide a recommendation to address each weakness.
Note: The total marks will be split equally between each part.