Question

Which of the following actions would be most likely to reduce potential conflicts of interests between stockholders and managers?

1) Increasing the salary of managers
2) Allowing managers to own stock in the company
3) Implementing a system of performance-based bonuses for managers
4) Hiring an independent board of directors

Answer 1

Hiring an independent board of directors is the most likely action to reduce potential conflicts of interest between stockholders and managers.

Step-by-step explanation:

The action that would be most likely to reduce potential conflicts of interest between stockholders and managers is hiring an independent board of directors. An independent board of directors is composed of individuals who have no affiliation or financial ties to the company. They are responsible for overseeing the actions of the managers and representing the interests of the shareholders. This helps to ensure that the managers' decisions are in line with the best interests of the shareholders and reduces the likelihood of conflicts of interest.

In contrast, increasing the salary of managers may actually increase the potential for conflicts as managers may prioritize their own financial interests over those of the shareholders. Allowing managers to own stock in the company could also lead to conflicts as managers may make decisions to benefit themselves rather than the shareholders. While implementing a system of performance-based bonuses for managers could align their interests with those of the shareholders to some extent, it may not completely eliminate conflicts of interest.