Question

If you were making recommendations to repair a dysfunctional board of directors, which of the following practices would you suggest be implemented?

Yes or No - Members serving on the board's audit committee should be "independent"

Yes or No - The company's charter should make hostile takeovers easier to accomplish

Yes or No - Board members and senior management should be compensated solely with cash, and any compensation received should be independent of the company's riskiness

Yes or No - Senior management's cash bonuses should be tied solely to the firm's short-term share-price performance.

Answer 1

Yes: Board members should be independent so that they do not make biased decisions in their personal interests.

Yes: A hostile takeover bid occurs when an entity tries to take control of a publicly traded company without the consent of the board of directors. This allows greater power to the shareholders and lesser to the directors.

No: Their compensation should be tied to the company performance such as stocks, so that they perform towards increasing the value oft he business.

No: Cash bonuses should also be tied to long term value and performance of the business so that directors work in the long term interest of the company.