Final answer:
The board of directors ensures the firm runs in the interests of shareholders. Shareholders have the right to vote for the board, but top executives have influence over their selection.
Step-by-step explanation:
In theory, the board of directors helps to ensure that the firm runs in the interests of the true owners- the shareholders. The board of directors is responsible for making important decisions about the company, such as setting the overall direction and strategy, appointing top executives, and monitoring their performance. Shareholders, on the other hand, are the owners of the company who hold shares of stock, which grants them certain rights, including voting for the board of directors.
However, it's important to note that the top executives who run the firm, including the CEO, have a strong influence in choosing the candidates who will serve on the board of directors. This is because they are often more knowledgeable about the company's operations and have a personal incentive to select directors who will align with their goals and vision. As a result, shareholders with a relatively small number of shares may have limited influence on the composition of the board.
In summary, the relationship between the shareholders and the board of directors is one where the board acts as a steward for the shareholders' interests but also has a degree of independence and influence over its composition. Shareholders, as the true owners of the company, have the right to vote for the board of directors and retain some control over the company's operations and decision-making.