As an executive at a firm, you are overseeing a proposal competition where employees of the firm pitch improvements to operations. In reviewing the proposals for consideration, you come across the following suggestion:

To avoid the potential for harming shareholders interests by wasting company resources, the Board of Directors should get managements approval before it hires outside consultants.

Given your knowledge of corporate governance, should you accept or reject the proposal? Why?

Answers:

A.) Accept. This proposal would maximize shareholder wealth by ensuring that managers act as their agents.

B.) Accept. The hiring of outside consultants could be a pecuniary project.

C.) Reject. The Board of Directors functions as an internal corporate governance mechanism that acts independent of firm management.

D.) Reject. Hiring decisions are the sole responsibility of the management of the firm.