In businesses managed by professional managers, managers frequently have less financial and emotional commitment to the business than the firm's owner. The MERGING / SEPERATION of ownership and management and the DELEGATION / USURPING of decision making by the owners to the professional manager create an environment in which these conflicts can take root.

1. a) 1 b) 2 c) 3 d) 4

2. a) enforce a corporate goverance 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. b) increase the pay bonus of the president and the management team. c) identify a competitor to take over the company.

In general, there are four categories of real or opportunity costs incurred by shareholders designed to prevent, mitigate, or correct management-shareholder agency conflicts. They are: 1. Expenditures to minimize management's desire to act contrary to the best interests of shareholders 2. Expenditures to monitor management's activities 3. Expenditures to provide a bond against management dishonesty 4. The opportunity cost of lost profits 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 firm's president and management team are all buddies and run the organization to make the president look good in the Wall Street Journal