The interests of different stakeholder groups can conflict. For example: owners generally seek high profits and so may be reluctant to see the business pay high wages to staff. a business decision to move production overseas may reduce staff costs.
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.
Conflicts can occur when a director-shareholder, who as a director is accountable to all company owners, makes an operational decision that some other shareholders disagree with. It is often difficult to ascertain whether he was carrying out his duty as a director or acting in his interests as an owner.
The manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth even though it is in the manager’s best interest to maximize his own wealth. Agency problems can be mitigated with the right incentives and contract design.
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.
What is the primary conflict of interest between directors and management?
Major conflicts of interest could include, but are not restricted to, salaries and perks, misappropriation of company assets, self-dealing, appropriating corporate opportunities, insider trading, and neglecting board work.
The possible agency conflict between inside owner/managers and the outside shareholders is the consumption or the indulgence in perks.
In the UK, a shareholder is not bound by strictures against conflict of interest. As someone who owns shares in a company, you may go to the general assembly of shareholders and vote in any way you choose – whether you have other interests that may have influenced your vote is irrelevant at this level.
What is the primary purpose of awarding stock options to managers?
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.
Shareholders of a company are of two types – common and preferred shareholder. As their name suggests, they are the owners of a company’s common stocks.