Furthermore even when a manager becomes CEO he or she is always looking over

Furthermore even when a manager becomes ceo he or she

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Furthermore, even when a manager becomes CEO, he or she is always looking over his or her shoulder because other managers covet that job.
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___________________________________________________________________________________________________________________ Page 15 of 19 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by: Susan Lim Email : [email protected] Large Stockholders All stockholders have an interest in providing managers with incentives to maximize stockholder value. However, as we noted earlier, most stockholders own too few shares to make it worthwhile for them to actively monitor managers. Only large stockholders, those with a significant investment in the firm, have enough money at stake and enough power to make it worthwhile for them to actively monitor managers and to try to influence their decisions The Takeover Market The market for takeovers provides incentives for managers to act in the interests of stockholders. When a firm performs poorly because management is doing a poor job, an opportunity arises for astute investors, so-called corporate raiders, to make money by buying the company at a price that reflects its poor performance and replacing the current managers with a topflight management team. The possibility that a firm might be discovered by corporate raiders provides incentives for management to perform well.
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___________________________________________________________________________________________________________________ Page 16 of 19 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by: Susan Lim Email : [email protected] The Legal and Regulatory Environment Finally, the laws and regulations that firms must adhere to limit the ability of managers to make decisions that harm the interests of stockholders. An example is federal and state statutes that make it illegal for managers to steal corporate assets. Similarly, regulatory reforms such as the Sarbanes-Oxley Act, discussed next, limit the ability of managers to mislead stockholders. 1. Ensure greater board independence. Firms must restructure their boards so that the majority of the members are outside directors. Furthermore, it is recommended that the positions of chair and CEO be separated. Finally, Sarbanes-Oxley makes it clear that board members have a fiduciary responsibility to represent and act in the interest of stockholders, and board members who fail to meet their fiduciary duty can be fined and receive jail sentences. 2. Establish internal accounting controls. Firms must establish internal accounting control systems to protect the integrity of the accounting systems and safeguard the firms’ assets. The internal controls are intended to improve the reliability of accounting data and the quality of financial reports and to reduce the likelihood that individuals within the firm engage in accounting fraud.
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  • Spring '17
  • JANE KDAL

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