3 Mary Hobbes joined the board of Rosh and Company, a large retailer, as finance director earlier this year. Whilst she
was glad to have finally been given the chance to become finance director after several years as a financial
accountant, she also quickly realised that the new appointment would offer her a lot of challenges. In the first board
meeting, she realised that not only was she the only woman but she was also the youngest by many years.
Rosh was established almost 100 years ago. Members of the Rosh family have occupied senior board positions since
the outset and even after the company’s flotation 20 years ago a member of the Rosh family has either been executive
chairman or chief executive. The current longstanding chairman, Timothy Rosh, has already prepared his slightly
younger brother, Geoffrey (also a longstanding member of the board) to succeed him in two years’ time when he plans
to retire. The Rosh family, who still own 40% of the shares, consider it their right to occupy the most senior positions
in the company so have never been very active in external recruitment. They only appointed Mary because they felt
they needed a qualified accountant on the board to deal with changes in international financial reporting standards.
Several former executive members have been recruited as non-executives immediately after they retired from full-time
service. A recent death, however, has reduced the number of non-executive directors to two. These sit alongside an
executive board of seven that, apart from Mary, have all been in post for over ten years.
Mary noted that board meetings very rarely contain any significant discussion of strategy and never involve any debate
or disagreement. When she asked why this was, she was told that the directors had all known each other for so long
that they knew how each other thought. All of the other directors came from similar backgrounds, she was told, and
had worked for the company for so long that they all knew what was ‘best’ for the company in any given situation.
Mary observed that notes on strategy were not presented at board meetings and she asked Timothy Rosh whether the
existing board was fully equipped to formulate strategy in the changing world of retailing. She did not receive a reply.
Required:
(a) Explain ‘agency’ in the context of corporate governance and criticise the governance arrangements of Rosh
and Company. (12 marks)