Analysis Intermediate: Weighing Management Quality

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1.
In terms of financial transparency, investors should prefer companies that _______.
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Disclose the minimum information, plus useful information that helps investors understand the business. Certainly every company should disclose all the information required by the SEC and other regulators. Above and beyond that, we think investors should favor companies that are forthright about their businesses, in good times and bad, and provide information that helps investors understand operations.
2.
A companys board of directors represents its management.
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False. The board represents the shareholders and their interests.
3.
Should an investor look with suspicion on companies whose employees do not have a clear separation between business and personal relationships?
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Yes. Lack of a boundary can be very bad for business.
4.
A great way to reward managers for building a successful business is to _______.
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Pay them a reasonable salary and a bonus tied to company profits. We like to see executive pay, in any form, tied to the operating and financial performance of the company. The best way to motivate executives is to pay them a reasonable salary (maybe even a "low" salary) and give them the opportunity to earn a significantly higher amount in the form of a bonus. Tying executive compensation to the stock price creates a perverse, short-term incentive for managers to say good things in public about the company rather than focus on making the company run better.
5.
To learn about a prospective company, stock analysts might interview _______.
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All of the above. An analyst might interview all of them, and others as well, such as suppliers.