Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers?
A) Congress passes a law that severely restricts hostile takeovers.
B) A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock.
C) The company changes the way executive stock options are handled,with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period.
D) The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company.
E) The composition of the board of directors is changed from all inside directors to all outside directors,and the directors are compensated with stock rather than cash.

Question

Quizplus · Accepted Answer

By changing the composition of the board of directors from all inside directors to all outside directors, the board becomes more objective and represents the interests of stockholders rather than managers. Additionally, compensating directors with stock incentivizes them to act in the best interest of the stockholders. This reduces the potential for conflicts of interest between stockholders and managers.

Which of the Following Actions Would Be Likely to Reduce