a) Response to the Chairman’s Proposals: To: Chairman From: Finance Director Date: 15 June 2021 Subject: Proposals aimed at maximization of the share price

Further to our recent discussions, I agree fully with your desire to seek the maximization of the company’s share price and therefore its market capitalization. However, although I agree that a relationship does exist between reported profits, earnings per share and the share price, short-term profits are not in themselves the principal driver of the share price. In reality, assuming a reasonably efficient market, the maximization of the share price will be brought about by the maximization of the present value of the future cash flows. The most effective way to increase the share price therefore is to concentrate on making investments that generate a positive net present value (NPV) when discounted at the cost of capital.

I believe that some of the current proposals could damage the position of some of the groups of stakeholders in the firm and could even have a negative impact on the share price.                                                                                                                                                             i) Delaying payments to creditors beyond the terms allowed could have a number of damaging effects, which include:

• Valuable discounts may be lost and credit charges incurred.
• The credit rating of the company could be damaged making it difficult to obtain further credit from new suppliers in the future, or from other sources of finance; and
• Supplies of materials could be jeopardized if the company’s orders are moved down the priority list or even placed ‘on stop’. ii) As explained above, it is necessary to undertake investments that generate a positive NPV in order to maximize the share price. Minimizing capital expenditure in order to boost short-term profits could therefore mean that some important opportunities are missed. This in turn means that the value of the company will be lower than it could be, which will impact badly on the share price. It could also adversely affect the position of other stakeholders such as employees and suppliers. iii) Regarding the Oloro II project, stringent controls on pollution exist, and the company must be certain that any delay in expenditure on measures to reduce pollution will not result in environmental standards such as discharge consents being breached. If this does happen, then the company will be liable for financial penalties, and again the standing in the local community will be damaged. If the problems are severe, then the company could come under pressure from environmental pressure groups which could result in more widespread damaging publicity.                                                                                       iv) Pegging back wages is likely to damage the morale of the employees, and could result in good employees being lost, while at the same time making it harder to recruit the right people. If morale is badly affected this could also affect both quality and the efficiency of production. Abandonment of charity sponsorship is likely to meet with opposition, not only from employees involved in the events, but also from the wider community which has previously relied on the company’s support.

 b) Ways to encourage managers to achieve stakeholder objectives:                                                                                                                   i. Reward systems Managers can be rewarded for achieving stakeholder objectives. For example, managers can be given bonuses for achieving certain levels of customer satisfaction or for achieving certain levels of employee satisfaction.                                            ii. Corporate governance corporate governance can be used to encourage managers to achieve stakeholder objectives. For example, the board of directors can be required to consider the interests of stakeholders when making decisions.                                iii. Stakeholder engagement Managers can be encouraged to engage with stakeholders. For example, managers can be required to consult with stakeholders before making decisions that affect them.                                                                                                               iv. Reporting Managers can be required to report on their progress in achieving stakeholder objectives. For example, managers can be required to report on their progress in achieving customer satisfaction targets or employee satisfaction targets.