QUESTION ONE : $15$ MARKS

Saxophone Enterprises Co $($Saxophone$)$ has been trading for $15$ years selling insurance

and has recently become a listed company. In accordance with corporate governance

principles Saxophone 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, Cello & Co$.$

Saxophone 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. Bill Bassoon is the chairman of Saxophone, until last year

he was the chief executive. Bill is unsure if Saxophone 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, Jessie Oboe, decides on the amount of remuneration each director

is paid. Currently all remuneration is in the form of an annual bonus based on profits.

Jessie 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.

Required:

In respect of the corporate governance of Saxophone Enterprises Co:

$($i$)$ Identify and explain FIVE corporate governance weaknesses; and $(7$ Marks$)$

$($ii$)$ Provide a recommendation to address each weakness