Why do managers act in the stockholders interest?
The agency view of the corporation posits that the decision rights (control) of the corporation are entrusted to the manager to act in shareholders ‘ interests. Control systems in corporate governance can help align managers’ incentives with those of shareholders and other stakeholders.
Several mechanisms are used to motivate managers to act in the shareholders’ best interests. These in- clude (1) the threat of firing, (2) the threat of takeover, and (3) managerial compensation plans.
The shareholders of any company have a responsibility to ensure that the company is well run and well managed. They do this by monitoring the performance of the company and raising their objections or giving their approval to the actions of the management of the company.
One of the simplest ways to do this is to pay managers partially in stock, making them stockholders themselves who have an interest in seeing the company succeed. Alternatively, stockholders can set specific goals and provide bonuses for meeting the goals.
The overriding duty of a fiduciary is the obligation of undivided loyalty. This obliges the director to act honestly, in good faith and to the best of his or her ability in the company’s interests. A director must not allow conflicting interests or personal advantages to override the company’s interests.
Shareholders and managers can work in a hierarchy in which principals attempt to control the actions of agents to achieve the wealth objective. Alternatively, shareholders and managers can work together as a cooperative team in which shareholders provide financial capital and managers provide human capital.
What are the two factors that impact whether managers will act in the best interest of stockholders?
Question: Whether managers act in the best interest of shareholders depends on the manner in which managers are compensated and whether managers be replaced if they do not pursue shareholder goals.
Which of the following help ensure managers act in the best interest of owners?
Which of the following help ensure managers act in the best interest of owners? A compensation package for managers that ties their salary to the firm’s share price.
The main interest of a shareholder is the profitability of the project or business. In a public corporation, shareholders want the business to make huge revenues so they can get higher share prices and dividends. Their interest in projects is for the venture to be successful.
Because shareholders are essentially own the company, they reap the benefits of a business’s success. These rewards come in the form of increased stock valuations or as financial profits distributed as dividends.
They have various rights which include the appointment of the company’s director, auditor, to voting rights and having a say when the company goes insolvent, right to access financial records, right to sue for wrongful acts, right to vote, right to attend the AGM, and right to transfer ownership.