Learning Objective:

Identify the potential conflicts that arise within the firm between stockholders and managers and between stockholders and bondholders, and discuss the techniques that firms can use to mitigate these potential conflicts.

Topic:

A well-run company should align the managements interest and with the owners interests.

What are some actions that stockholders can take to ensure that managements and stockholders interests are aligned? Is this important? What are some of the risks/consequences if the managements interests are not aligned with the owners?