Which of the following control mechanisms is commonly used to ensure that executives and managers,as agents of the firm's owners,act in the best interests of those owners?

Question

Quizplus · Accepted Answer

The establishment of a strong, independent board of directors is a commonly used control mechanism to ensure that executives and managers act in the best interests of the firm's owners. The board of directors is responsible for monitoring and guiding the actions of management, and when the board is independent and not dominated by management, it can provide an effective check on their behavior. Pay plan incentives, stockholder presence on the board, and reading reports and newspapers are all potentially important, but the establishment of a strong, independent board is the most effective control mechanism to ensure that management acts in the best interests of the firm's owners. Therefore, option B is the correct answer. Option A is incorrect because Pay plan incentives create alignment in the interests of management and shareholders. Option C is incorrect because the presence of large stockholders can potentially undermine the independence of the board. Option D is incorrect because reading board of director reports alone is not an effective control mechanism. Option E is incorrect because what is stated in newspapers may not necessarily reflect the interests of the firm's owners or the actions of management.

Which of the Following Control Mechanisms Is Commonly Used to Ensure