Section A – This ONE question is compulsory and MUST be attemptedCare Services Company (CS
Section A – This ONE question is compulsory and MUST be attempted
Care Services Company (CSC) is a private company, owned by Dr Sam Tan and his wife, Sonja. Sam, a qualified medical doctor, has been involved with the care of elderly and vulnerable adults for over 30 years and set up CSC five years ago to try to improve the quality of care in his locality and to also build a business which he could then sell when he retired. The company employs 180 people in total with 165 of those being the carers who visit service users (usually the elderly, disabled or those with learning difficulties) in their own homes to help with personal needs.
The services provided by CSC are outsourced to them by the local government authority and the government health service. CSC receives funding from these bodies in line with national government policy which determines that care is best delivered by specialist companies such as CSC, rather than directly by the government. Contracts to care providers such as CSC are awarded on a three-year basis. The criteria for provider selection are partly on the basis of cost and partly on the basis of the perception of the quality of the care provided.
Because they deliver important social services and health care, CSC and other companies providing personal care are subject to a rigorous regulatory regime. These regulations apply to all care services, whether provided directly by the government or by companies such as CSC who provide the outsourced care services. All carers, for example, must undergo compulsory training on a wide range of issues. Each potential employee must be checked for past criminal convictions, whilst high standards of hygiene and professional behaviour are expected at all times.
As time passed, rival care service companies entered the market. As a result, CSC experienced increased competition for contracts and it lost some of its care contracts with some government agencies to competitor care providers. Because the award of contracts was partly based on the perception of the company itself, and not just its care quality, Dr Tan came to believe that the governance of the company might be something which should be reconsidered. He believed that the perception of sound governance was necessary to ensure confidence in its services from both its service users and those government bodies outsourcing the service.
Accordingly, he decided to adopt best practice in corporate governance with the creation of a small executive board augmented by the appointment of a number of non-executive directors, along with a committee structure. Natasha Mbana, the current co-ordinator of the company’s care services, was made chief executive and Dr Tan proposed that he himself might become the new non-executive chairman. Over time, a total of five non-executive directors were appointed to the board of CSC and they were each paid a small annual fee for their services. All of the non-executives were retired members of large public listed company boards with little experience of public sector service delivery. They all lived in the locality in which CSC was based and Dr Tan believed their presence on the board would look impressive when it came to CSC renewing its service contracts.
As a company fulfilling public sector contracts for care service delivery, pay rates for carers are often relatively low. This also applies to the financial rewards of the senior management in CSC who receive much less in salary and benefits than those with equivalent responsibilities in the private sector. CEO Natasha Mbana says that she accepts a lower level of reward because she believes in the ‘public sector ethos’ and believes that CSC provides a vital public service. When the new non-executive directors saw what she earned, they noted that she was on much less than the market rate for a chief executive and that she should receive a substantial increase in her rewards to recognise her contribution to the company. Dr Tan said that this might not be possible and that the new non-executive directors should recognise that rewards in the public sector are often much less than those in large listed companies.
Last year, a problem arose for care providers when a small number of companies were exposed by the media for very poor practice. CSC was not implicated in the allegations, but some other companies in the industry were accused of making inadequate or very brief visits to service users, or missing out visiting some service users altogether, under time pressure to see other service users. Most service delivery contracts specified a minimum visit period of 30 minutes per patient and that carers needed to provide a minimum standard of care on each visit, including attending to the service user’s personal needs, food, drinks and medication. But because of the pressure to complete their other duties, carers sometimes ignored these minimum periods and thereby failed to fulfil service users’ personal needs.
This meant that affected service users were left in discomfort, without food, water and medicines, and sometimes in considerable pain. This caused a lot of anger among the public, and led the country’s health minister to ask about the internal controls in care provider companies. The health minister expressed the view that the most vulnerable in society had been let down badly, and the reputation of the care industry was badly damaged. Many companies, including CSC, became aware of public resentment and, in some cases, public hostility.
The manager of ‘We care’, another care supplier, went on television to explain that there were a number of structural problems with providing care under the government contracts. He said it was difficult to recruit carers and the low pay often meant that it was difficult to retain them. Furthermore, the pressure to deliver the outsourced care services was intense with carers having to hurry from one service user to another to complete their work. It was no surprise, he said, that service users often received less care than they needed because the demands on each carer were so high.
Aware that this scandal threatened the reputation of the whole care services industry, Dr Tan decided that it might be beneficial for CSC to develop and publish a code of ethics which would apply to the company and all of its carers. He was aware that the reputation of all care providers might be affected by the bad practice of a few companies and he wanted to ensure that CSC was well-thought of so it could compete successfully for future contracts and continue to enjoy the support of its service users.
In response to the negative publicity, a number of care providers held a conference and it was decided that Dr Tan, as a doctor and a senior figure in the industry, should write to the health minister on behalf of them all. In particular, they asked Dr Tan to address the issues of the internal controls in care provisions and the measures which providers would be undertaking to ensure there would be no repetition of any bad practices. They thought this a worthwhile measure to attempt to convince the health minister that providers had addressed his concerns.
Required:
(a) Explain the meaning of corporate governance and agency relationships, and contrast how the objectives of corporate governance differs between a large listed company and a smaller company delivering public sector services such as Care Services Company (CSC). (8 marks)
(b) The non-executive directors believed that Natasha Mbana was underpaid in her position as chief executive officer (CEO) of Care Services. Required: Explain what ‘market rate’ means and explain why Natasha Mbana’s rewards as CEO of a public sector service provider are likely to be lower than for a CEO of a large listed public company. (10 marks)
(c) Explain the importance of reputation to CSC, and discuss the potential benefits of the proposed corporate code of ethics for CSC. (12 marks)
(d) Draft a letter from Dr Sam Tan to the government health minister, which includes the following:
(i) An explanation of the importance of internal controls in CSC and other care service providers. (8 marks)
(ii) A proposal recommending suitable internal control changes which would help to address the service delivery failures described in the case. (8 marks)
Professional marks will be awarded in part (d) for the layout, flow, tone and structure of the letter. (4 marks)