QUESTION 1 (30 MARKS)

a) At a recent Annual General Meeting of Iskandar Berhad, the company included a statement in its annual report as to the prime objective of the company. That was the maximization of shareholder wealth. Following the meeting the Chairman received letters from the shareholders in connection with this statement. The main cause for concern raised by those letters were that the prime objective was not correct. Shareholders were suggesting that the prime objective should be the maximization of profit. Draft a reply for the Chairman of Iskandar Berhad supporting the companys published objective, which would be sent to each shareholder who had written, together with an appropriate comment on objective that had been suggested by the shareholders.

b) Jonathan is the CEO of Sedap Rasa Berhad, a famous fast food company in Malaysia. He and his handpicked board of directors are managing Sedap Rasa Berhad with only some minority shares in the company. They receive very high monthly salaries, and enjoy good profit related bonuses, but they are all under a one-year employment contract with the company. Currently, the market share price of Sedap Rasa Berhad is very much below the fair value of the company. Jonathan and the board of directors choose to invest only in projects with low risk. Explain THREE (3) ways in which Jonathan and the board of directors may have a conflict of interest with the shareholders.