1) How has the failure to separate ownership, the board and management impaired the corporate governance of the company? 2) Discuss how the compensation system may have impacted the risk appetite and corporate governance of the company.
Internal control improvements
CP underwent a major restructuring of its financial control teams via the recruitment of seasoned
professionals. They took on roles in identifying, reporting and managing the Group’s treasury
activities and financial risks.
Accounting firm PricewaterhouseCoopers (PwC) was engaged to review CP’s
management
Group Internal Audit expanded its scope of risk-based internal audit services provided to the Audit
Committee. Additionally, CP appointed a consulting firm to conduct a thorough study and
assessment of CP’s finance function.
CP also updated its terms of reference (TOR) of the audit committee. The updated TOR expanded
the committee’s oversight function to include the duty to discuss with management the company’s
internal
control measures into consideration when implementing policies and programmes.
These efforts aimed at improving internal control and corporate governance seemed to have done
well in restoring investor confidence, as seen from the 19 per cent increase in share price a day
after the management reshuffle was announced. Despite suffering losses amounting to HK$ 10
billion and incurring a debt of HK$9.38billion15 from its unauthorised currency trading bets, CP
continued to show positive results in 2009. These are attributable to profits from its steel business,
property projects in mainland China and the progress of its iron ore mine in Australia.
Discussion Questions
1) How has the failure to separate ownership, the board and management impaired the
corporate governance of the company?
2) Discuss how the compensation system may have impacted the risk appetite and
corporate governance of the company.
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