Question

QUESTION 2

Liyala Sdn Bhd is a successful family-run business. The board of directors is led by the founder of the company, Liyala who is both chairman and CEO. The other board members, a finance director and two non-executive directors, are also Liyala’s brother and daughter. The members of Liyala family own all the share capital of the company.The company does not have a company secretary, and its auditors are a local firm of accountants in the town where Liyala has its head office.

Liyala is proud of his entrepreneurial success. He has been prepared to take big risks with the company’s strategy in order to grow the business and, when necessary, he has been willing to cancel the annual dividend to shareholders to spend money on investment or to accept temporary decline in profits for the sake of longer-term success. He is aware that the company does not have a good reputation as an employer, but he believes that the company exists for the benefit of the Liyala family and employees should be grateful to have their jobs.

Liyala wants to retire in a few years’ time. He would like his daughter to take over the running of the company, but he would also like to take the company public. He is aware that the governance of the company have to undergo substantial change for this to happen, but he does not want to retire until all changes have been made and the company’s shares are being traded on Bursa Malaysia.

Required

a / Explain how the board’s attitude to its shareholders and other stakeholders will need to change if Liyala Sdn Bhd goes public ?

                                                                                                                                       

b / Giving your reasons, identify the main aspects of governance that the board of Liyala Sdn Bhd will have to consider before the companies goes public, and suggest changes that will have to be made?

Answer 1

Explain how the board’s attitude to its shareholders and other stakeholders will need to change if Liyala Sdn Bhd goes public ?

1. Untill now the shareholders were family member only and they all had common interest of earning and growing the earnings both. Dividend was not the sole purpose of their investment and they had very different strategic goals for the return from their investment in the family business. However, once the company goes public there will be substantial changes which will take place. They have to start showing empathy towards the company;s shareholders and investors and honor their commitments to pay timely dividend.

2. Company is very much identified by their employees i.e. human talent treasure and no qualified and experienced person is willing to work with company which do not consider their employees as their assets and not liability. Liyala have to change their attitude towards employees so they can attract bright minds and improve their social presence as well as external goodwill of having productive work culture. Common investors look after these traits in the company

3. Liyala have to start moving out of the family culture and consider that after listing at stock exchange it wont be a family business. There would be part control over the company than and CEO or chairman would be choosen based upon merits and not relations.

b / Giving your reasons, identify the main aspects of governance that the board of Liyala Sdn Bhd will have to consider before the companies goes public, and suggest changes that will have to be made?

Following aspects of governance will need to be analyzed:

• Transaparency: They have to bring transparency in decision and move over the practice where major decisions were taken by 2-3 senior members of the family.
• Responsiveness: They have to be responsive to the needs of the employees and other stakeholders in terms of providing them with required information they want to make investment decisions etc
• Consensus Oriented: Decisions making have to be based upon general consensus of stake and share holders
• Accountability: There needs to be set environment of accountabilty and sharing responsibility in terms of performance and non performance. A person should take responsibility for his or her work
• Participation.: Environment of team work and participation by all has to be developed