ABC Corporation paid an executive $300,000.00 in annual compensation. A state court determines that this compensation was excessive and reduces the compensation to $250,000.00. This problem is similar to which of the following cases in Chapter 39?

Question

Rene Dunn

Physics

14 July, 11:31

ABC Corporation paid an executive $300,000.00 in annual compensation. A state court determines that this compensation was excessive and reduces the compensation to $250,000.00. This problem is similar to which of the following cases in Chapter 39?

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Answers (1)

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Nathalia Conway · Answer 1

This a pure case of conflict of interests between the interest of the shareholders who are the original owners of the company and management's interest in earning much more, even if it at the expense of the shareholders.

Explanation:

Management is the entrusted with the day to day affairs of corporations. In carrying out their duty, they must have at the back of their minds that maximization of shareholder's wealth is of top priority.

However. some management teams in a bid to gain undue advantage set their remuneration below reasonable levels.

Ultimately, when this happens, their duty to watch over the investment of shareholders clashes with their interest for personal gains.