Stocks Intermediate: Weighing Management Quality

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1.
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.
2.
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.
3.
Investors should look for companies that _______.
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Have set clear goals for measuring progress. Good measurement is good management.
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.
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.