Question

A major cost of the separation of ownership and control of corporations is that the managers of the corporation may sometimes act in their own best interest as opposed to shareholders’ interests. What can shareholders do to discipline self-interested managers? [SELECT ALL THAT APPLY.]

Question 3 options:

	fire them
	vote to replace the board of directors who can replace the self-interested managers
	sell shares to push down the stock price
	reduce their pay (fine them)

Answer 1

The shareholders can take action which includes

· Sell shares to push down the prices

· vote to replace the board of directors who can replace the self-interested managers

Fall in the prices of the shares may force the management to perform better. Shareholders can also vote to replace the board of directors who can perform better.

Shareholders can not fire the managers directly because that is done by the board of directors and shareholders can also not directly reduce the pay of the managers because that is also decided by the board of directors. Shareholders can vote for a director who will act in their best interest.