Consider the following situation and identify both the category of the expenditure and the best device that might be used to prevent, reduce, or correct the agency conflict:

A firms president and management team are all buddies and run the organization to make the president look good in the Wall Street Journal.

Expenditure category:

1

3

4

2

Most appropriate form of control device:

Identify a competitor to take over the company.

Increase the pay and bonus of the president and the management team.

Enforce a corporate governance program that provides for an independent board of directors that will vigorously oversee and take action against the president and the management team if warranted.