Question

Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers? Group of answer choices 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. A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock. Eliminate a requirement that members of the board of directors must hold a high percentage of their personal wealth in the firm's stock. Congress passes a law that severely restricts hostile takeovers. Beef up the restrictive covenants in the firm's debt agreements.

Answer 1

Answer:

Actions that would be most likely to reduce potential conflicts of interest between stockholders and managers are:

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.

Explanation:

For instance, Company XYZ  will get its managers' conflict of interests reduced as it achieves  goal congruence.  The absence of goal congruence pushes the managers of Company XYZ  not to run the business professionally in the best interest of their stockholders.  But, by aligning the interests of managers with those of the stockholders through more stock compensation, managers are constrained to act in the best interest of all stockholders, including themselves.