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1.
Should an investor look with suspicion on companies whose employees do not have a clear separation between business and personal relationships?
Yes. Lack of a boundary can be very bad for business.
2.
How much money the company pays its CEO and top management is _______.
An important sign of how the company has set up its incentive system. The compensation of top corporate officers is a touchy subject, mostly because a lot of corporate officers are paid a great deal of money. We dont have any hard and fast rules for determining how much is "too much," but at the extremes, executive pay can eat up a significant chunk of corporate profits, which eats directly into shareholder returns.
3.
You can get information on the backgrounds and qualifications of the managers of companies you are interested in from the Securities and Exchange Commission.
True. Companies include information on their managers in their shareholder statements, which are filed with the SEC.
4.
The chief executive officer is accountable to _______.
The board of directors. The chief executive officer is accountable to the board of directors, who, in turn, represent (and are elected by) the shareholders of the company. This is the primary reason we object to companies in which the CEO and chairman of the board are the same person--we believe it may lead to situations in which the CEO wields undue influence over the affairs of the board, which should be primarily independent and provide oversight of the CEO.
5.
Which of the following signs may indicate that company directors are motivated to look out for the firms long-term interests?
They own many shares of the company. If a director has a significant stake (in terms of his or her personal wealth) in the shares of the firm, we think this is the best sign that he or she will look out for the long-term interests of the firm.
