Principles of Finance I WEEK 5: Discussion Prompt #2 – Managerial entrenchment o

Question

Principles of Finance I WEEK 5: Discussion Prompt #2 – Managerial entrenchment occurs when managers gain so much power that they can use the firm to further their own interests rather than the interests of shareholders. The shareholders are essential to the organization. For this discussion, consider that you are the CEO of a large public-traded organization. What steps would you take to ensure that your management team makes decisions for the better of the stakeholders and not their own interests? Provide specific steps based on your research of organizations that have faced this issue in the past.

Explanation / Answer

Being the CEO of a large publicly traded organization, the following steps may be taken to ensure the management team continues to work towards enhancing shareholder value:

* Ensuring proper accountability towards all policy level decisions taken by the Management.

* Ensuring the Shareholders are informed of the Vision & Corporate Strategy of the Company.

* Ensuring Investor Queries are given due attention & are resolved on time.

* Maintaining transparency in major policy decisions.

* Ensuring a very high degree of Corporate Governance in the company.

* Ensuing proper mechanisms are in place to avoiding conflict of interest by the Management team.

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