Question

Methods of encouraging managers to act in shareholders’ best interest include:

I. Threat of takeover.
II. Proxy fights for control of the board of directors.
III. Tying managers’ compensation to stock price performance.

Answer 1

I, II, and III

Step-by-step explanation:

Managers may be motivated to act/manage company in the interest of the shareholders. This is because their shareholders are the financiers of the company and if they are not happy with company performance, it will be detrimental for the company. Managers may be encouraged to act in their interest by:

Threatening takeover: where company may be acquired by another company and structure and operations may be altered such as ousting the manager.

Altering manager's compensation such as tying it to stick price, inadvertently tying it to his performance.

Proxy fights where manager could be voted out.