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NEW QUESTION: 1
Tony Nguyen works in the investor relations department of a medium sized technology firm. He recently received the following e-mail: "I am an investor concerned with agency problems between managers and stockholders. What assurance do I have that the company works to align the interests of these two groups?" Which of the following actions that the firm has taken does NOT address the e-mail's concerns?
A. The company recently adopted a shareholder rights plan that allows existing shareholders favorable terms over outside parties. The plan is triggered if a person or group acquires beneficial ownership of
10 percent or more of the company's common stock.
B. Every employee receives performance shares and cash bonuses, based on his or her position and company earnings per share results.
C. The board has a reputation for aggressively monitoring current management and is quick to remove poor-performing managers.
D. The company recently expanded its executive stock-option program to include middle-level managers.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
The shareholder rights agreement is an example of a poison pill, a device used to discourage hostile takeovers. The threat of takeover is a mechanism designed to reduce conflicts between managers and shareholders, so anything that weakens the threat would not align the interests of managers and shareholders.
Performance shares, cash bonuses, and stock option plans are examples of managerial compensation mechanisms designed to align the interests of stockholders and managers. The aggressive board is an example of the threat of firing mechanism. The other mechanism noted in the reading is direct intervention by shareholders. The goal of these mechanisms is to motivate managers to achieve a higher stock price, which improves shareholder wealth.


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