June 2009 Q1(d)

The negative publicity associated with the loss will cause share price to suffer, thereby causing a reduction in the shareholder's wealth. Am I right sir ?

It asks for three impacts. There might be more than three so any three could give full marks. Your suggestion is fine.

Okay thank you sir.

I don't understand why the CEO Mrs Keefer will affected. Could you explain the point in the answer key regarding Mrs Keefer. "Directors such as Mrs Keefer are likely to experience a much higher level of investor scrutiny for some time to come and Mrs Keefer herself may not survive in her post. The apparent failure of the Global-bank board in its agency responsibilities is likely to increase the amount of intervention by investors and this will be an inconvenience for the board until such time as investor confidence is fully restored. Benefits such as bonuses may be subject to revisions at general meetings and other directors, seen as complicit in Mr Mineta’s losses, may not survive their next retirement by rotation election." Why would she experience a much higher level of investor scrutiny for some time to come and why she may not survive in her post ? Can you also explain the bonus part ?

The company made a gigantic loss whilst she was CEO implying carelessness or unacceptable risk taking. Why would she be trusted in the future? The bonus system encouraged traders to take large risks that could be good for them but disastrous for shareholders if they were unsuccessful. Be careful using old P1 papers. Not all P1 topics are in SBL.

Thank you sir.