Question

Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to:_________.
a. elect an insider as the lead director.
b. appoint another individual as chairperson of the board of directors.
c. require Mr. Leagreet to personally certify the firm's financial reports.
d. reduce the size of the stock option package provided to Mr. Leagreet.

Answer 1

Answer:

b. appoint another individual as chairperson of the board of directors.

Explanation:

As the statement indicates that the idea is to limit Mr. Leagreet's power who is Chairperson and CEO, the board of directors should appoint another individual as chairperson of the board of directors. This because the CEO is the person that manages an organization and has to report to the board of directors. The Chairperson is who directs the board of directors. Because of that, electing another individual as the Chairperson would allow to limit Mr. Leagreet's power as in his duty as CEO he would have to report to the Board of Directors that would be led by a different person.

Answer 2

Answer:

b. appoint another individual as chairperson of the board of directors.

Explanation:

By appointing another individual as chairperson of the board of directors, will essentially limits Mr. Simon Leagreets power or role, to position of CEO only, which in turn will reduce his personal extravagance at the expense of the firm, as powers and influence has been decentralized in the firm.

In other words, by electing another insider as the lead director, will have no effect on Mr. Leagreet personal extravagance, because the Lead director will still be under his executive directives.

Also, requiring Mr. Leagreet to personally certify the firm's financial report is equating to giving him more power or role to function which does not limits his personal extravagance

And lastly, reducing the size of the stock option package of Mr. Leagreet will in no way, reduce his personal extravagance at the firm's expense.