ACCAP1-P3模擬題及解析(21P&JisalongestablishedlistedcompanybasedinEmmland,ahighlydevelopedandrelativelyprosperouscountry.Forthepast60years,P&JhasbeenEmmland’slargestimporterandprocessorofaproductnamedX32,acompoundusedinawidevarietyofbuildingmaterials,protectivefabricsandautomotiveapplications.X32isamaterialmuchvaluedforitsheatresistance,strengthandadaptability,butperhapsmostofallbecauseitisflexibleandalsototallyfireproof.ItisthislastpropertythatledtothegrowthofX32useandmadeP&Jahistoricallysuccessfulcompanyandamajorexporter.X32isminedinsomeofthepoorestdevelopingcountrieswherelargelocalcommunitiesdependheavilyonX32miningfortheirincomes.Theincomesfromtheminingactivitiesareusedtosupportcommunitydevelopment,includingeducation,sanitationandhealthfacilitiesinthosedevelopingcountries.TheX32isthenprocessedindedicatedX32facilitiesneartotheminingcommunities,supportingmanymorejobs.ItisthenexportedtoEmmlandforfinalmanufactureintofinishedproductsanddistribution.EachstageofthesupplychainforX32isdedicatedonlytoX32andcannotbeadaptedtoothermaterials.InEmmland,P&Jisthemajoremployerinseveralmedium-sizedtowns.InAytown,forexample,P&Jemploys45%oftheworkforceandinBetown,P&Jemploys3,000peopleandalsosupportsanumberoflocalcausesincludingachildren’snursery,anamateurfootballclubandanumberofadulteducationclasses.Intotal,thecompanyemploys15,000peopleinEmmlandandanother30,000peopleinthevariouspartsofthesupplychain(miningandprocessingindevelopingcountries.UnlikeinEmmland,wherehealthandsafetyregulationsarestrong,therearenosuchregulationsinmostofthedevelopingcountriesinwhichP&Joperates.Recently,someindependentacademicresearchdiscoveredthatX32wasveryharmfultohumanhealth,particularlyintheprocessingstages,causingawiderangeoffatalrespiratorydiseases,includingsomethatremaininactiveinthebodyformanydecades.DoctorshadsuspectedforawhilethatX32wasthecauseofanumberofconditionsthatP&Jemployeesandthoseworkingwiththematerialhaddiedfrom,butitwasonlywhenProfessorHarryKrolldiscoveredhowX32actuallyattackedthebodythatthelinkwasknownforcertain.ThediscoverycausedagreatdealofdistressatP&J,andalsointheindustrieswhichusedX32.Thecompanywasfacedwithaverydifficultsituation.Giventhat60%ofP&J’sbusinesswasconcernedwithX32,ProfessorKroll’sfindingscouldnotbeignored.AlthoughdemandforX32remainedunaffectedbyKroll’sfindingsintheshorttomediumterm,thecompanyhadtoconsideranewlegalriskfromastreamofpotentiallitigationactionsagainstthecompanyfromemployeeswhoworkedinenvironmentscontaininghighlevelsofX32fibre,andworkersinindustrieswhichusedX32intheirownprocesses.Inordertogainsomeunderstandingofthepotentialvalueoffuturecompensationlosses,P&Jtooklegaladviceandproducedtwosetsoffigures,bothdescribingthepresentvalueofcumulativefuturecompensationpaymentsthroughlitigationagainstthecompany.Theseforecastswerebasedonfinancialmodellingusinganotherproductofwhichthecompanywasaware,whichhadalsobeenfoundtobehazardoustohealth.In5yearsIn15yearsIn25yearsIn35years$(M$(M$(M$(MBestcase530150400Worstcase20803501,000Thefinancedirector(FD,HannahYin,informedtheP&Jboardthatthecompanycouldnotsurviveiftheworst-casescenariowasrealised.Shesaidthattheactualoutcomedependedupontheproportionofpeopleaffected,theperiodthattheillnesslayundetectedinthebody,thecontrolmeasureswhichwereputinplacetoreducetheexposureofemployeesanduserstoX32,andsociety’sperceptionofX32asamaterial.Sheestimatedthatlossesatleastthesizeofthebestcasescenariowereverylikelytooccurandwouldcauseamanageablebuthighlydamagingleveloflosses.Theworstcasescenariowasfarlesslikelybutwouldmakeitimpossibleforthecompanytosurvive.Althoughprofitable,P&Jhadbeenhighlygearedforseveralyearsanditwasthoughtunlikelythatitsbankswouldlenditanyfurtherfunds.HannahYinexplainedthatthiswouldlimitthecompany’soptionswhendealingwiththerisk.Shealsosaidthatthecompanyhadlittlebywayofretainedearnings.Chiefexecutiveofficer,LaszloHo,commissionedastudytoseewhetherthehealthrisktoP&JworkerscouldbemanagedwithextrainternalcontrolsrelatingtosafetymeasurestoeliminateorreduceexposuretoX32dust.TheconfidentialreportsaidthatitwouldbeverydifficulttomanageX32dustinthethreestagesofthesupplychainunlessthefacilitieswereredesignedandrebuiltcompletely,andunlessindependentbreathingapparatuswasissuedtoall2peoplecomingintocontactwithX32atanystage.FDHannahYincalculatedthatafullrefitofallofthecompany’smines,processingandmanufacturingplants(whichMrHocalled‘PlanA’wassimplynotaffordablegiventhecurrentmarketpriceofX32andthecurrentcostsofproduction.LaszloHothenproposedtheideaofapartialrefitoftheAytownandBetownplantsbecause,beinginEmmland,theyweremorevisibletoinvestorsandmostotherstakeholders.MrHoreasonedthatthispartialrefit(whichhecalled‘PlanB’wouldenablethecompanytoclaimitwasmakingprogressonimprovinginternalcontrolsrelatingtosafetymeasureswhilstmanagingcurrentcostsand‘waitingtosee’howthemarketforX32faredinthelongerterm.UnderPlanB,nochangeswouldbemadetolimitexposuretoX32inthecompany’soperationsindevelopingcountries.HannahYin,aqualifiedaccountant,wastrustedbyshareholdersbecauseofherperformanceintheroleofFDoverseveralyears.Becauseshewouldbebelievedbyshareholders,MrHoofferedtosubstantiallyincreasehershareoptionsifshewouldreportonlythe‘bestcase’scenariotoshareholdersandreport‘PlanB’asevidenceofthecompany’ssocialresponsibility.SheacceptedMrHo’sofferandreportedtoshareholdersashehadsuggested.ShealsosaidthatthecompanywasawareofProfessorKroll’sresearchbutarguedthatthefindingswerenotconclusiveandalsonotconsideredaseriousrisktoP&J’sfuturesuccess.Eventually,throughspeakingtoananonymouscompanysource,afinancialjournalistdiscoveredthewholestoryandfeltthatthepublic,andP&J’sshareholdersinparticular,wouldwanttoknowabouttheeventsandthedecisionsthathadbeentakeninP&J.Hedecidedtowriteanarticleforhismagazine,InvestorsinCompanies,onwhathehaddiscovered.Required:(aDefine‘socialfootprint’anddescribe,fromthecase,fourpotentialsocialimplicationsofProfessorKroll’sdiscoveryaboutthehealthrisksofX32.(10marks(bDescribewhat‘riskdiversification’meansandexplainwhydiversifyingtheriskrelatedtothepotentialclaimsagainsttheuseofX32wouldbeverydifficultforP&J.(10marks(cAsanaccountant,HannahYinisboundbytheIFACfundamentalprinciplesofprofessionalism.Required:CriticisetheprofessionalandethicalbehaviourofHannahYin,clearlyidentifyingthefundamentalprinciplesofprofessionalismshehasfailedtomeet.(9marks(dWritingasthejournalistwhodiscoveredthestory,draftashortarticleforthemagazineInvestorsinCompanies.Youmayassumethemagazinehasaneducatedreadership.Yourarticleshouldachievethefollowing:(iDistinguishbetweenstrategicandoperationalriskandexplainwhyProfessorKroll’sfindingsareastrategicrisktoP&J;(8marks(iiDiscusstheboard’sresponsibilitiesforinternalcontrolinP&JandcriticiseMrHo’sdecisiontochoosePlanB.(9marksProfessionalmarkswillbeawardedinpart(dforthestructure,logicalflow,persuasivenessandtoneofthearticle.(4marks(50marks3[P.T.O.SectionB–TWOquestionsONLYtobeattempted2AfterarecentfinancialcrisisinthecountryofOland,therehadbeenanumberofhighprofilecompanyfailuresandagenerallossofconfidenceinbusiness.Asaresult,anupdatedcorporategovernancecodewasproposed,withchangestoaddresstheseconcerns.Beforethenewcodewaspublished,therewasadebateinOlandsocietyaboutwhethercorporategovernanceprovisionsshouldbemaderules-based,orremainprinciples-basedashadbeenthecaseinthepast.Oneelectedlegislator,MartinMung,whoseconstituencycontainedanumberofthecompaniesthathadfailedwithresultingrisesinunemployment,arguedstronglythatmanyofthecorporategovernancefailureswouldnothavehappenedifdirectorswerelegallyaccountableforcompliancewithcorporategovernanceprovisions.Hesaidthat‘youcan’ttrustthemarketstopunishbadpractice’,sayingthatthiswaswhathadcausedtheproblemsinthefirstplace.HesaidthatOlandshouldbecomearules-basedjurisdictionbecausethecurrent‘complyorexplain’wasineffectiveasameansofcontrollingcorporategovernance.MrMungwasangeredbythecompanyfailuresinhisconstituencyandbelievedthatalackofsoundcorporategovernancecontributedtothefailureofimportantcompaniesandthejobstheysupported.Hesaidthathewantedthenewcodetomakeitmoredifficultforcompaniestofail.Thenewcodewasthenissued,underaprinciples-basedapproach.OneaddedprovisioninthenewOlandcodewastorecommendareductioninthere-electionperiodofalldirectorsfromthreeyearstooneyear.Thecodealsorequiredthatwhenseekingre-election,thereshouldbe‘sufficientbiographicaldetailsoneachdirectortoenableshareholderstotakeaninformeddecision’.Thecodeexplainedthatthesemeasureswere‘intheinterestsofgreateraccountability’.Required:(aExaminehowsoundcorporategovernancecanmakeitmoredifficultforcompaniestofail,clearlyexplainingwhat‘corporategovernance’meansinyouranswer.(10marks(bMartinMungbelievesthatOlandshouldbecomearules-basedjurisdictionbecausethecurrent‘complyorexplain’approachisineffectiveasameansofcontrollingcorporategovernance.Required:Explainthedifferencebetweenrules-basedandprinciples-basedapproachestocorporategovernanceregulation,andargueagainstMartinMung’sbeliefthat‘complyorexplain’isineffective.(8marks(cExplainwhat‘accountability’means,anddiscusshowtheproposednewprovisionsforshorterre-electionperiodsandbiographicaldetailsmightresultin‘greateraccountability’asthecodesuggests.(7marks(25marks3InYayaCompany,operationsdirectorBenJanoonrecentlyrealisedtherehadbeenanincreaseinproductsfailingthefinalqualitychecks.ThesecheckswerecarriedoutintheQC(qualitycontrollaboratory,whichtestedfinishedgoodsproductsbeforebeingreleasedforsale.Theproductfailureratehadrisenfrom1%ofitemstwoyearsagoto4%now,andthismeantanincreaseofhundredsofitemsofoutputamonthwhichwerenotsoldontoYaya’scustomers.ThefailedproductshadnovaluetothecompanyoncetheyhadfailedQCasthereworkcostswerenoteconomic.Becausetheincreasewasgradual,ittookawhileforMrJanoontorealisethatthefailureratehadrisen.AthoroughreviewofthemainproductionoperationrevealednothingthatmightexplaintheincreasedfailureandsoattentionwasfocusedinsteadontheQClaboratory.Forsomeyears,theQClaboratoryatYaya,managedbyJaneGoo,hadbeenmarginalisedinthecompany,withitstwostaffworkinginaremotelaboratorywellawayfromotheremployees.OperationsdirectorBenJanoon,whodesignedtheinternalcontrolsystemsinYaya,rarelyvisitedtheQClabbecauseofitsremotelocation.HeneveraskedforinformationonproductfailureratestobereportedtohimanddidnotunderstandthescienceinvolvedintheQCprocess.HereliedonthetwoQCstaff,JaneGooandherassistantJohnZong,bothofwhomdidhaverelevantscientificqualifications.ThetwoQCstaffconsideredthemselveslowpaid.WhilstintheorytheyreportedtoMrJanoon,inpractice,theyconductedtheirworkwithlittlecontactwithcolleagues.Theworkwasroutineandinvolvedtestingproductsagainstasetofcompliancestandards.AsinglesignatureonaproductcompliancereportwasrequiredtopassorfailinQCandthesereportswerethenfiledawaywithno-oneelseseeingthem.ItwaseventuallyestablishedthatJaneGoohadfoundalocalbuyertopayherdirectlyforanyofYaya’sproductswhichhadfailedtheQCtests.Theincreasedfailureratehadresultedfromhersigningproductsashaving‘failedQC’when,infact,theyhadpassed.Shekepttheproceedsfromthesalesforherself,andalsopaidherassistant,JohnZong,aproportionoftheproceedsfromthesaleofthefailedproducts.Required:(aExplaintypicalreasonswhyaninternalcontrolsystemmightbeineffective.(5marks(bExplaintheinternalcontroldeficienciesthatledtotheincreasedproductfailuresatYaya.(10marks(cDiscussthegeneralqualitiesofusefulinformation,statingclearlyhowtheywouldbeofbenefittoMrJanoon,andrecommendspecificmeasureswhichwouldimproveinformationflowfromtheQClabtoMrJanoon.(10marks(25marks5[P.T.O.4RailwayDevelopmentCompany(RDCwasconsideringtwooptionsforanewrailwaylineconnectingtwotowns.RouteAinvolvedcuttingachannelthroughanareadesignatedasbeingofspecialscientificimportancebecauseitwasoneofaveryfewsuitablefeedinggroundsforacolonyofendangeredbirds.Thebirdswereconsideredtobeanimportantpartofthelocalenvironmentwithsomepotentialinfluencesonlocalecosystems.ThealternativewasRouteBwhichwouldinvolvethecompulsorypurchaseanddestructionofEddieKrul’sfarm.MrKrulwasavocalopponentoftheRouteBplan.Hesaidthathehadarighttostayonthelandwhichhadbeenownedbyhisfamilyforfourgenerationsandwhichhehaddevelopedintoaprofitablefarm.ThefarmemployedanumberoflocalpeoplewhosejobswouldbelostifRouteBwentthroughthehouseandland.MrKrulthreatenedlegalactionagainstRDCifRouteBwaschosen.AnindependentlegalauthorityhasdeterminedthatthecompulsorypurchasepriceofMrKrul’sfarmwouldbe$1millionifRouteBwaschosen.RDCconsideredthisamaterialcost,overandaboveotherlandcosts,becausetheprojectednetpresentvalue(NPVofcashflowsoveraten-yearperiodwouldbe$5millionwithoutbuyingthefarm.ThiswouldreducetheNPVby$1millionifRouteBwaschosen.Thelocalgovernmentauthorityhadgivenbothroutesprovisionalplanningpermissionandofferednoopinionofwhichitpreferred.Itsupportedinfrastructureprojectssuchasthenewrailwayline,believingthateitherroutewouldattractnewincomeandprosperitytotheregion.Ittooktheviewthatasanexperiencedrailwaybuilder,RDCwouldknowbestwhichtochooseandhowtoevaluatethetwooptions.Becauseitwasverykeentoattracttheinvestment,itleftthedecisionentirelytoRDC.RDCselectedRouteAastheroutetobuildthenewline.Alocalenvironmentalpressuregroup,‘SavetheBirds’,wasoutragedatthedecisiontochooseRouteA.ItcriticizedRDCandalsothelocalauthorityforignoringthesustainabilityimplicationsofthedecision.Itaccusedthecompanyofprofitingattheexpenseoftheenvironmentandthreatenedtouse‘directaction’todisruptthebuildingofthelinethroughthebirds’feedinggroundifRouteAwentahead.Required:(aUseTucker’s‘fivequestion’modeltoassessthedecisiontochooseRouteA.(10marks(bDiscusstheimportancetoRDCofrecognisingallofthestakeholdersinadecisionsuchasdecidingbetweenRouteAandRouteB.(8marks(cExplainwhatastakeholder‘claim’is,andcriticallyassessthestakeholderclaimsofMrKrul,thelocalgovernmentauthorityandthecolonyofendangeredbirds.(7marks(25marks試題及答案:1(aSocialfootprintandpotentialsocialimplications.SocialfootprintTheterm‘footprint’isusedtorefertotheimpactoreffectthatanentity(suchasanorganisationcanhaveonagivensetofconcernsorstakeholderinterests.A‘socialfootprint’istheimpactonpeople,societyandthewellbeingofcommunities.Impactscanbepositive(suchastheprovisionofjobsandcommunitybenefitsornegative,suchaswhenaplantclosureincreasesunemploymentorwhenpeoplebecomesickfromemissionsfromaplantortheuseofaproduct.ProfessorKroll’sfindingshavebothpositiveandnegativeimpactsuponsocietyandcommunitiesinthecaseofP&J.PotentialimplicationsThediscoverybyProfessorKrollwilllead,whetherbyatighteningofcontrolsorbyareductioninP&J’sactivities,tolowerexposurestoX32inAytownandBetown,andhencetherewill,overtime,belessX32-relateddisease.Therewill,inconsequence,befewerpeoplesuffering,and,accordingly,lessmiseryfortheaffectedfamiliesandfriendsofsufferers.AlowermortalityfromX32-relateddiseasewillbenefitcommunitiesandfamiliesaswellasthoseindividualsdirectlyaffected.However,astheyarecontinuingtomanufacturetheproduct,ifProfessorKroll’sfindingsprovecorrect,largernumbersofpeopleusingtheproductwillultimatelybeaffectedworldwide.LossofjobsinthevariousstagesoftheP&Jsupplychain.Theforecastlosses,eveninthebestcasescenario,wouldbelikelytoinvolvethelossofjobsandemploymentlevelsatP&Jplantsanditssuppliers.Theworstcasescenario,inwhichthecompanyitselfwouldbelost,wouldinvolvethelossofthe45,000P&JjobsplusmanymoreamongsuppliersandinthecommunitiessupportedbytheP&Jplants(suchasinlocalbusinessesinAytownandBetown.Lossof,orseriousdamageto,communitiesinwhichtheoperationsarelocated.ThisincludestheeconomicandsocialbenefitsinthedevelopingcountriesandaveryhighlevelofsociallossinAytownandBetown(inEmmland,wherebothtownsarehighlydependentonasingleemployer.ItislikelythatAytown,effectivelya‘companytown’with45%ofthejobsatP&J,willbeverybadlyaffectedandthegoodcausesinBetown,suchasthenurseryandadulteducationclasses,willnolongerbeabletobesupported.Thelossofamajoremployerfromatowncanleadtoalossofcommunitycohesion,netoutwardmigrationandalossof,ordeteriorationin,communityfacilities.Therewillbealossofeconomicvalueforshareholders,andareductioninthestandardsoflivingforthosedependinguponthecompany’svalueforincomeorcapitalgrowth.Thismightresultinareductioninpensionbenefitsorendowmentvalues,whereP&Jsharesareapartofthevalueofsuchfunds.IndividualsholdingP&Jsharesmayloseasubstantialproportionoftheirpersonalwealth.[Tutorialnote:Allowotherrelevantimpactssuchaslossoftaxestofundstatesservices,increasesinstatefundingtosupportunemployed/sickworkers,etc.](bRiskdiversification.Diversificationofriskmeansadjustingthebalanceofactivitiessothatthecompanyislessexposedtotheriskyactivitiesandhasawiderrangeofactivitiesoverwhichtospreadriskandreturn.Riskscanbediversifiedbydiscontinuingriskyactivitiesorreducingexposureby,forexample,disposingofassetsorsellingsharesassociatedwiththeriskexposure.ProblemswithdiversificationofrisksInthecaseofP&J,thecasehighlightsanumberofissuesthatmakeP&JparticularlyvulnerableandwhichwouldplaceconstraintsonitsabilitytodiversifytheX32legalrisk.Akeyriskisthatthecompany’sportfolioofactivitiesisheavilyskewedtowardsX32with60%ofitsbusinessinX32whenKroll’sfindingswerepublished.ThisisaveryunbalancedportfolioandmakesthecompanystructurallyvulnerabletoanyhealththreatthatX32poses.Itmeansthatamajorityofitsassetsandexpertisewillbededicatedtoasinglematerialandanythingthatmightbeariskrelatingtosalesofthatmaterialwouldbearisktothewholecompany.Thecasesaysthattheplantcannotbeadaptedtoproduceothermaterials.Amine,forexample,cannotsuddenlybe‘adapted’toproduceasaferalternative.ThecasealsosaysthatprocessingplantsarededicatedexclusivelytoX32andcannotbemodifiedtoprocessothermaterials.ThismeansthattheyeithercontinuetoprocessX32ortheymustbecompletelyrefittedtoworkonalternativematerials.Asaresultofthat,P&JisunlikelytobeabletodisposeofX32assetsprofitablynowthatKroll’sfindingsareknownaboutandthereasonsforthehealthconcernshavebeenidentified.ThereactionofsocietytoX32washighlightedbyHannahYinasakeyfactorindeterminingthelikelihoodoftheriskandthismightmakeitdifficulttoselltheassetsontoothers.Finally,theobviouswaytodiversifytheriskistoexpandtheremaining40%oftheportfoliotobecomemoreprominent.However,thecompanyhaslittlebywayofretainedearningsandisalreadyhighlygearedwithlittleprospectoffurtherborrowing.Thisislikelytolimititsoptionsfordevelopingnewproductsasameansofdiversification.Shareissueswouldbeapossiblewayofre-financing,butwithsuchahighexposuretoX32losses,thiswouldbeproblematic.[Tutorialnote:Somecandidatesmayattempttointerpretthedatainthecasenumerically.Allowmarksifrelevantpointsaremade.](cCriticismsofHannahYin’sbehaviourrelatedtofundamentalprinciples.Therearefivefundamentalprinciplesthatapplytoallprofessionalsincludingprofessionalaccountants.Theyareintegrity,objectivity,professionalcompetenceandduecare,confidentialityandprofessionalbehaviour.Inthiscase,thefundamentalprinciplesthatHannahYinhasbreachedareintegrity,objectivityandprofessionalbehaviour.CriticiseHannahYinHannahbetrayedthetrustofshareholders,makingadisclosureinhernamepreciselybecausesheknewshewouldbebelieved.Thisshowsalackofintegrityandisalsoveryunprofessionalbehaviour.Herstatusasaprofessionalandherperformanceoverrecentyearshadbuiltupastockoftrustinher.Itwasherresponsibilitytomaintainandcultivatethistrustandtocontinuetogiveshareholdersgoodreasontotrustherasaprofessionalaccountant.Tomakebiasedandpartialdisclosurespreciselybecauseshewastrustediscynicalandabetrayalofherdutyasacompanydirectorandasaprofessional.Asaprofessionalwithintegrity,HannahYinshouldhavethehighestlevelsofprobityinallpersonalandprofessionaldealings.Professionalsshouldbestraightforwardandhonestinallrelationships,andnevertakepartinanythingthatmightundermine,orappeartoundermine,thetrustwhichsocietyhasplacedinthem.Furthermore,sheacceptedinducementstocomplywithMrHo’swishes.Asignificantincreaseinshareoptionsmadeherdisproportionatelyconcernedwiththeshort-termmaintenanceofthecompanyshareprice,andthishelpedtocloudherjudgementandreducedherobjectivityasaprofessional.Shemayhavereasonedthatitwouldhavebeenagainstherowneconomicselfinteresttodisclosetheworstcasescenariobecauseitwouldreducethevalueofhershareoptionsintheshortterm.HannahYinshouldnothaveallowedbias,conflictsofinterestorundueinfluencetocloudherjudgementsonprofessionaldecisions.Thismeans,forexample,thatshemustnotallowthepossibilityofparticularpersonalgainstoover-ridetheimperativetoalwaysupholdthepublicinterestandrepresentthebestinterestsofshareholders.Finally,sheknowinglyandintentionallymisledshareholdersbyonlyreportingthemostoptimisticriskforecasts.Thisisaclearbreachoftheintegrityandprofessionalbehaviourrequiredofapersoninherposition.Theprinciplesoftransparencyandfairnessrequirecompaniestobetruthfulandcompleteintheirdisclosurestoshareholders,especiallywhenprice-sensitiveinformation(suchasthehealthrisksofX32isinvolved.ProfessionalssuchasHannahYinshouldcomplyfullywithallrelevantlawsandregulations,whilstatthesametimeavoidinganythingthatmightdiscredittheprofessionorbringitintodisrepute.Thisinvolvescomplyingwiththespiritaswellastheletterofwhicheverregulationsapply.(dArticleforInvestorsinCompanies.(iStrategicandoperationalriskandexplainwhyfindingsarestrategic.TroubleatP&JThesemustbedifficulttimestobeadirectoratP&J,Emmland’slargestproducerofX32.WhatdoesaboarddowhenitisfacedwithhavingcausedalargenumberofterriblehealthproblemsforemployeesandusersofX32,whilstatthesametimehavingnostrategicalternativebuttocarryonandtrytomanagewhataresuretobeenormouslong-termliabilities?StrategicandoperationalrisksThecompanyisfacingahighlystrategicrisksincethepublicationofProfessorKroll’sfindings.Whereasoperationalthreatsarethoseaffectingapartofacompany,perhapsarisktoarawmaterialorthelossofaproductmarket,astrategicriskisonethathasthepossibility,ifrealised,toaffectthecompanyasawholeanditsfuturestrategicsuccess.Wehaveseensimilarrisksbeforetoimportantindustrieswhere,forexample,entireindustrieshavedisappearedfromsomedevelopedcountriesbecauseofchangesininternationallabourmarketcostsandpoliticalchanges.Theseareexamplesofstrategicrisksmaterialising,andtheeffectscanbedisastrousforthoseaffected.StrategicrisktoP&JP&JshareholderswillappreciateknowingthatKroll’sreporthastheeffectofbeingastrategicriskforP&Jforatleastthreereasons.Tobeginwith,hisfindingspotentiallyaffectthewholecompanyratherthanjustpartsofit,suchistheextentofP&J’sexposuretothiscommoditythroughverticalintegration.Presumablythisstrategyhadpreviouslybeenthoughtagoodidea,withthecompanydirectlyowningallthreestagesinthesupplychain,frommining,toprocessing,tothemanufacturingoperationsinEmmland.AllstagesarethreatenedbyKroll’sfindings.Plus,ifproductsaleseventuallyslowdownandstop,itssourcesofcashflowwillalsodisappear.Second,thisisboundtoaffectP&J’sstrategicpositioningandthewaythatitisviewedbyinvestors,suppliers,employeesandarangeofotherstakeholders.IthasaweakerofferingtopotentialskilledemployeesthanbeforeKroll’sfindingswerepublished,itwillbehardertoraisecapitalandalsotosellitsproducts.Itsreputationasasoundcompanywillbereducedasaresult,andthesethingsmatterinahighly