Tony Nguyen works in the investor relations department of a medium sized technology firm. He recently received the following e-mail: "I am an investor concerned with agency problems between managers and stockholders. What assurance do I have that the company works to align the interests of these two groups?" Which of the following actions that the firm has taken does NOT address the e-mail's concerns?
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A. B. C. D.C
The shareholder rights agreement is an example of a poison pill, a device used to discourage hostile takeovers. The threat of takeover is a mechanism designed to reduce conflicts between managers and shareholders, so anything that weakens the threat would not align the interests of managers and shareholders.
Performance shares, cash bonuses, and stock option plans are examples of managerial compensation mechanisms designed to align the interests of stockholders and managers. The aggressive board is an example of the threat of firing mechanism. The other mechanism noted in the reading is direct intervention by shareholders. The goal of these mechanisms is to motivate managers to achieve a higher stock price, which improves shareholder wealth.