5.4k views
3 votes
The term pilot board of directors is best explained by which statement?

1 Answer

5 votes

Final answer:

The pilot board of directors is selected mainly by top executives, shaping the firm's governance and shareholder representation. Despite ideally safeguarding shareholder interests, in reality, executives' influence can limit shareholder power and board diversity, while imperfect information affects financial capital decisions. Corporate governance effectiveness can vary, as demonstrated in historical failures like Lehman Brothers.

Step-by-step explanation:

The term pilot board of directors refers to a group of individuals selected primarily by the top executives of a company to oversee its management and advocate for shareholders' interests. In an ideal situation, a board of directors acts as a robust governance mechanism, promoting the best interests of the shareholders, who are considered the true owners of a firm.

However, the reality often reflects a different situation, where top executives have significant influence in determining who gets to be part of the board. This influence creates a scenario where not all shareholders are equally represented or able to nominate alternative directors due to a lack of knowledge, resources, or personal incentive.

Furthermore, the patterns in which businesses raise financial capital is often explained by imperfect information, a situation where there is asymmetric information between those running the firm and outside investors. The directors, being closer to firm operations, typically possess better information regarding the firm's potential for future profits.

Ultimately, the effectiveness of corporate governance instruments, such as the board of directors, auditing firms, and large outside investors, can significantly vary, and at times, they fail to safeguard the interests of the shareholders, as seen in historical cases like Lehman Brothers.

User Abhinsit
by
7.7k points

No related questions found