Khalaz retailer is wholesaler company with huge sales across the countries. It is owned by a vibrant entrepreneur known as Shah Effendy. Over the years, Khalaz grows tremendously and decided to list the company in the stock exchange under the leadership of Shah Effendy. Even though Shah is a renowned entrepreneur, he is very dominant in his leadership and wants full control over the board decision. He held both position as the chairman and chief executive officer of the company. He refused to engage independent or non-executive directors on board. He also appoints his family members on board, including his three sisters, who owned a company that supplies inventory for the company. Initially the shareholders are agreeable to his leadership style, nonetheless as sales started to decrease and news over the family members interference in the board decisions spreads. Further, Shah Effendy also appoints a close friend of him as auditor who provides consultancy service for his acquisition and financing deals. Required (i) Explain the nature of the agency problem that exists in Khalaz retailer. (ii) Assess the extent to which Khalaz's corporate governance arrangements and situation fail to constitute governance best practice. (iii) Shah Effendy has consistently resisted the appointment of independent, non-executive directors to the board of Khalaz retailer. Construct a case for Khalaz retailer appointing independent non-executive directors.
Khalaz retailer is wholesaler company with huge sales across the countries. It is owned by a vibrant entrepreneur known as Shah Effendy. Over the years, Khalaz grows tremendously and decided to list the company in the stock exchange under the leadership of Shah Effendy. Even though Shah is a renowned entrepreneur, he is very dominant in his leadership and wants full control over the board decision. He held both position as the chairman and chief executive officer of the company. He refused to engage independent or non-executive directors on board. He also appoints his family members on board, including his three sisters, who owned a company that supplies inventory for the company. Initially the shareholders are agreeable to his leadership style, nonetheless as sales started to decrease and news over the family members interference in the board decisions spreads. Further, Shah Effendy also appoints a close friend of him as auditor who provides consultancy service for his acquisition and financing deals.
Required
(i) Explain the nature of the agency problem that exists in Khalaz retailer.
(ii) Assess the extent to which Khalaz's corporate governance arrangements and situation fail to constitute governance best practice.
(iii) Shah Effendy has consistently resisted the appointment of independent, non-executive directors to the board of Khalaz retailer. Construct a case for Khalaz retailer appointing independent non-executive directors.
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