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CFA Level I · CFA Level I Exam · Investors and Other Stakeholders

A company's board chair is also its chief executive officer, and most directors were appointed by the chair and have long personal ties to management. Which stakeholder conflict is this structure most likely to worsen?

It most likely worsens the shareholder–manager conflict. When the CEO also chairs the board and directors lack independence, the board cannot effectively monitor or challenge management, so managers can more easily pursue their own interests over those of shareholders.

  1. AShareholder–manager conflict, because oversight of management is weakenedCorrect
  2. BCreditor–shareholder conflict, because leverage is increased
  3. CCustomer–supplier conflict, because contract pricing is distorted

Explanation

A combined chair/CEO with non-independent directors weakens the board's ability to monitor and challenge management. This aggravates the agency conflict between shareholders and managers. The other conflicts are not directly tied to board independence.

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