Stocks Intermediate: Weighing Management Quality

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1.
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.
2.
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.
3.
Another term for fiduciary responsibility, according to Philip Fisher, is trusteeship.
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True. Fisher described the qualities he looks for in managers as trusteeship.
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.
A stock analyst might interview a companys customers to get a sense of whether the company would be a good investment.
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True. An analyst might interview customers, typically larger institutional ones.