Analysis Intermediate: Weighing Management Quality

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1.
Which of the following signs may indicate that company directors are motivated to look out for the firms long-term interests?
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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.
2.
You can get information on the backgrounds and qualifications of the managers of companies you are interested in from the Securities and Exchange Commission.
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True. Companies include information on their managers in their shareholder statements, which are filed with the SEC.
3.
Investors should look for companies that _______.
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Have set clear goals for measuring progress. Good measurement is good management.
4.
Whom does the board of directors of a company represent?
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The shareholders. The board is elected by the shareholders and technically represents them.
5.
The chief executive officer is accountable to _______.
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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.