- 1 Why would managers interests differ from those of shareholders?
- 2 How can the problem between shareholders and managers be solved?
- 3 What are the interests of shareholders?
- 4 When can there arise a conflict between shareholders and managers goals?
- 5 What kind of conflict of interest does exist between shareholders and managers?
- 6 What is the primary purpose of awarding stock options to managers?
- 7 What is the primary responsibility of shareholders?
- 8 What are the roles and responsibilities of shareholders?
- 9 What are examples of a possible result of the conflict of interest between shareholders and corporate managers?
- 10 How would you resolve conflict between directors and shareholders?
- 11 What are the four types of shareholders?
- 12 What is the main role of shareholders?
Managers are more interested in higher revenue because it means more expenses can be made that are beneficial to them. The shareholders may want to invest in many companies so that they are holding less risk if one company might go into liquidation and so the shareholders financial security are not threatened.
Mechanism to resolve the conflict of interests between shareholders and managers: Conflict of interest between the shareholders and managers can be resolved through the mechanism of agency costs and market forces that reward the managers for their good performance and punish them for poor performance.
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.
The conflicts between stockholders and the managers of a business include the following: The more money that managers make in wages and benefits, the less stockholders see in bottom-line net income. Stockholders obviously want the best managers for the job, but they don’t want to pay any more than they have to.
The conflict of interest between managers and stockholders is known as the agency problem.
What is the primary purpose of awarding stock options to managers?
The Pay-to-Performance Link. The main goal in granting stock options is, of course, to tie pay to performance—to ensure that executives profit when their companies prosper and suffer when they flounder. Many critics claim that, in practice, option grants have not fulfilled that goal.
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.
- Changes to the constitution of the company.
- Declaring a dividend.
- Approving the financial statements of the company.
- Winding up of the company by way of voluntary liquidation.
What are examples of a possible result of the conflict of interest between shareholders and corporate managers? Managers using company resources for personal benefit. Managers faking earnings to temporarily boost the stock price. Managers paying themselves excessive salaries.
Another way of managing the conflict is by ensuring that the board of directors includes a shareholder with skills and expertise in the affairs of the company. This shareholder will serve as the shareholders “watchdog” and will safeguard the shareholders’ interests.
Types of Shareholders:
- Equity Shareholder: Equity shareholders are the types of shareholders that own the company.
- Preference Shareholder: Preference shareholders do not have any voting rights in the company and thus cannot interfere in the working of the management of the company.
- Debenture holders:
The shareholders are the owners of the company and provide financial backing in return for potential dividends over the lifetime of the company. By investing in return for new shares in the company. By obtaining shares from an existing shareholder by purchase, by gift or by will.