The Oily Pragmatism of ABC Limited

Mr Ahmad is the Chief Executive Officer and an executive director of ABC limited, a public listed
company involved with the processing of edible oil.. He has been the CEO with ABC for the last 15
years. Mr Ahmad is scheduled to meet the newly appointed Chairman of ABC, Mr Sham, to discuss the
role of the latter as well as to brief the latter on the issues for deliberation at the next board meeting.
Mr Sham had just retired as CEO of 20 years from a government linked holding company producing
palm oil. This company have been a regular customer of ABC.

Mr Sham was nominated by Mr Ahmad for election by the shareholders to become an Independent
non-executive director of ABC at the recently held AGM. According to Mr Ahmad, Mr Sham was
nominated for this directorship by virtue of his experience and skills in managing palm oil business.
At the first meeting of the board, Mr Sham was elected to be the Chairman of ABC upon the
recommendation of Mr Ahmad.

During the brief meeting with the Chairman, Mr Ahmad raised several issues that need to be resolved
at the next board meeting and he also sought Mr Shams support in the proposed decisions to be
made. The issues are:

1) Mr Ahmad is seeking the support of Mr Sham to support his proposal that the management
staff including himself be rewarded for the positive performance in the recent quarter. He is
also seeking the support of Mr Sham to persuade the other board members to consider
bonuses for him and for the management team. He is also expecting a new remuneration
package to retain him as the CEO so he can lead the management team in sustaining the
positive performance of the company quarter on quarter. Mr Ahmad indicated to Mr Sham
that one of the institutional investors had been pleased with the performance of the company
and his leadership in directing the company into the future.

2) Mr Ahmad suggested that as Chairman, Mr Sham should lead the Audit committee of the
board and consider replacing the current External Auditor KWC with PKF.KWC had been
auditing for five 5 years and Mr Ahmad felt that it is time to change auditors based on the rule
based system in USA. Besides KWC had not been cooperative with the management team but
preferred to work only with the audit committee and the internal audit team. Also KWC had
been less willing to undertake some of the consulting projects suggested by Mr Ahmad
including the one pertaining to the new business. When asked by the chairman on the policy
regarding non audit work, Mr Ahmad was not aware that such a policy existed.

3) Mr Ahmad had indicated that he had arranged for the current non-executive directors to go
for professional development training before he can recommend the for nomination at the
next annual general meeting. He had to initiate this as the previous chairman failed to
evaluate the capacity and capabilities of those directors.
Questions for discussion:

a) Discuss the weaknesses and strengths of ABCs corporate governance practices.

b) Suggest or recommend measures that can be taken to improve the governance of ABC.
c) What is the difference between being independent and exercising independence? Relate your
answer to the case of the Chairman Mr Sham and the auditor KWC.
d) What strategy should Mr Sham adopt to effectively lead board of ABC?