How Do Corporations Ensure That Managers' and Stockholders' Interests Coincide

question 10

Essay

How do corporations ensure that managers' and stockholders' interests coincide?

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Definitions:

Right of First Refusal

A contractual right that gives its holder the option to enter a business transaction with the owner of something, before the owner is entitled to enter into that transaction with a third party.

Watered Stock

Shares that are issued by a company at a value much greater than its actual assets, typically leading to an inflated market value.

Business Judgment Rule

A principle of corporate governance that shields a corporation's board of directors from liability for decisions made in good faith, with due care, and in the best interests of the corporation.

Shareholder's Direct Suit

A legal action initiated directly by a shareholder against the corporation, typically for actions that have caused harm directly to the shareholder.