Question

The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of

A) reasonably compensating a CEO.
B) a weak board of directors.
C) the laxity of institutional investors.
D) the difference in risk propensity between owners and managers.

Answer 1

B) a weak board of directors

Step-by-step explanation:

The board of directors of a company are elected group of people that represents the interest of shareholders of a company.

They provide oversight by meeting at intervals to set policies that will govern the company.

In the given scenario the CEO got interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options.

This is with the consent of the board of directors and despite the company earning below-average returns.

It is a sign that the board of directors is weak and are not adequately representating the wishes of the shareholders.