The management of Blue Hamster Manufacturing Inc. controls 58% of the company’s stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm’s institutional investors are worried that the firm’s poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented? They would want the company to ban targeted share repurchases. They would want to make sure the company’s charter contains a shareholder rights provision. They would want to make sure the company has a restricted voting rights provision. It is reasonable to assume that a firm’s management is going to be ultimately motivated to act in their own best interest. It can be a serious problem for shareholders if management’s self-interests do not align with shareholders’ self-interests. Select the statement that best describes the board of directors’ actions in the following scenario:
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Corporate Governance The management of Smith and T Co. controls 58% of the company's stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm's institutional investors are worried that the firm's poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented? They would like to see that the majority of the company's board of directors is composed of true outsiders. They would like to see that the company has an interlocking board of directors with one of the company's strategic partners. They would like to see the size of the board of directors increased because larger boards usually implement a higher degree of corporate governance. It is reasonable to assume that a firm's management is going to be ultimately motivated to act in their own best interest. It can be a serious problem for shareholders if management's self-interests do not align with shareholders' self-interests. Select the statement that best describes the board of directors' actions in the following scenario: Charles Underwood Agency Inc.'s optimal capital structure calls for the firm to have 20% debt and 80% equity financing. The firm's board of directors has decided to include only 10% debt in the firm's capital structure. The reason for using less than the optimal amount of debt is that the board wants to ensure they can borrow at a reasonable rate if a good investment opportunity arises. The board's decision will help to align management's interests with the shareholders' interests. The board's decision will give management an opportunity to make decisions that may not be in the shareholders' best interest. The firm's amount of debt will not have an effect on the relationship between managers and shareholders.
Jennifer S.
Ramon Ramez, the president and CEO of Save the Planet, Inc., a waste management firm, was recently hospitalized, suffering from exhaustion and a heart ailment. Immediately prior to his hospitalization, Save the Planet had experienced a sharp decline in its stock price, and trading activity became almost nonexistent. The primary reason for this was concern expressed in the media over a new untested waste management system implemented by the company. Mr. Ramez had been unwilling to submit the procedure to testing before implementation, but he reluctantly agreed to limited tests after the system was operational. No problems have been identified by the tests to date. The other members of management called a meeting to determine what they should do. Susan Heart, the marketing manager, suggested that the company purchase a large number of shares of treasury stock. In that way, investors might notice that activity had picked up and might decide to buy some more shares. This plan would use up most of the company's available cash, so there will be no money available for a cash dividend. Save the Planet has paid cash dividends every quarter for over ten years. Questions: 1. Is Ms. Heart's suggestion ethical? Explain why or why not. 2. Is it ethical to discontinue the cash dividend? Why or why not? 3. Do you have any other suggestions for management?
Akash M.
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