What recourse do shareholders have to keep CEO’s ethical? Would you only buy stocks in companies...

What recourse do shareholders have to keep CEO’s ethical? Would you only buy stocks in companies that meet your ethical standards?

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Expert Solution

Shareholders have adequate representation in the board of directors of the company and the board can authorize adequate actions against the CEO in case of unethical conduct on the CEO’s part. The board can also remove the CEO, if the situation so warrant. Also shareholder’s being owners of the company can move resolution in the Annual General Meeting to replace the CEO if he or she is found unethical. Moreover, a large scale of dumping of shares by shareholders may be done in the wake of unethical conduct by CEO which would reduce the share price and hence reduce the compensation for CEO in case he is found unethical.

So the above mentioned checks and balances can be enforced by the shareholders to keep the CEO ethical.

It is true that I would only buy stocks in which the management is ethical to ensure that as a shareholder I am not defrauded by the management and the agency conflict does not take place. Also ethical practices means a higher brand reputation and lesser chances of penalty which would mean sustainable financial success and thus ensuring greater returns for a shareholder.

jeff jeffy answered 1 year ago

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