Adam Harris is a chief executive director for a Multinational company situated in Malaysia. As a chief executive with generousity pay packets, Adam Harris is not necessarily working in the best interests of shareholders and, thus there may be a situation to limit his pay. 

The board of directors of the company had a meeting to discuss whether limits on Adam Harris pay will beneficial to shareholders or not. It is reported that in the year 2018 to 2019, Adam Harris managed to report higher earnings by 35%. During the meeting, Mr. Jay suggest to provide Adam Harris with RM2 million extra bonuses as to encourage the CEO to make effective decision for the best interest of shareholders. On the other hand, Mr. Richard who is also the board of director of the company, against the suggestion because he contended that Adam Harris, as a CEO will have the tendency to make ineffective decision rather than working closely with the board of directors and make the decision in the best interest of shareholders.

Furthermore, according to Ms. Shareena, who is also the audit committee members on the board, explained that for the past 5 years, Adam Harris compensation has been increasing in order to improve the company position and performance. However, Adam Harris performance as the company CEO, cannot be measured appropriately with the company's share value. The report also shows that there are allegedly charged over RM1.5 million to Adam Harris corporate credit card for itmes that were personal in nature. For example, he charged RM1 milion for a new yacht, RM28,000 for first-class travel for his own family, RM12,000 for a birthday party, and RM20,000 for a charitable donations to his son's private

school. All this reported items have come accross to the board however the board just ignored. Majority of the board members are his good friend and relatives.

Ms. Shareena highlighted that Adam Harris' actions and decisions for the company's material economic decision is basically from his own judgement as a CEO and occasionally refer to the board of directors and/or other board committee. Not much of the company significant economic decisions have been discussed with the board of directors or other relevant committee for consideration. There are also cases whereby the audit committee had already informed Adam Harris to give priority on the earnings distributed to the shareholders as dividend. However, the increases of share dividend are quite trivial for 2019. During the discussion, Ms. Shareena also informed that in the year 2019, a financial report has been presented to the board of directors. The report shows three major streams of revenue: concert sales, sponsorship and government funding. 

For the year ended 30 June 2019, these revenues were about RM2.7 million, RM1.4 million, and RM8.9 million respectively. Ms. Shareena explained that the company's expenses are largely fixed, even before the start of the season. For the purpose of the event all associated cost are set in advance.

 The main uncertainties about the success of a season concern the subscription and door sales revenue from its concert. As the 2019 financial year starts half-way through the concert season, the result for the first half of the financial year is nearly unalterable, and that for the second half depends largely on the attractiveness of the next season to subscribe and sponsors. For this reason, the company has little to manage earnings, either by making discretionary accruals or by structuring real transactions in the short term. 

However, Adam Harris did not make any proposal on the techniques that the company can consider. This issue has becoming another factor in considering Adam Harris's accountability when preparing the accounting information and to present it to the board of directors. The board of directors concern on the techniques to be used to manage the earning and that could be either ethical or unethical from the shareholders' perspectives. In addition, the board of directors are concerned about the role of audit committee towards excessive earnings management if such case occurred. This can be a problem to the company.

Required:

(a) Analyse issues that arise in this case.

(b) Justify suitable theory that iluminates Adam Harris case in executing his role as the company's chief executive director.

(c) In your opinion, from corporate governance context, what are the internal controls mechanisms should the board of directors consider to improve the accountability and transparency of the management towards the company's shareholders.