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.
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.
3.
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.
4.
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.
5.
How much money the company pays its CEO and top management is _______.
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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.