Stocks Intermediate: Weighing Management Quality

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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?
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Yes. Lack of a boundary can be very bad for business.
2.
A companys board of directors represents its management.
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False. The board represents the shareholders and their interests.
3.
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.
4.
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.
5.
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.