Management executive salaries

More specifically, the board of directors of an organization are needed to possess the understanding and the sufficient skills to ensure no biases in any decision undertaken by the management of the firm. In situations where the board of directors in a company are controlled by the internal management, it is quite likely that the management decisions are made free from biases and in favour of the organization (Brigham & Houston, 2017). Nonetheless, proper control by the board of directors minimizes the chances of biases and favor during the decision making. Different people make their investments in the organization with the intention of realizing maximum profits out of their investments. It is the role of the board of directors to play a critical role in the decision making on behalf firm’s shareholders.

The organization is only likely to grow and expand into a large organization if more investments are made into the organization. Interestingly, an organization that focuses on the maximization of its size rather than the value of its current common stock might lead to push its investments quite low below the capital costs of the firm. It is, therefore, appropriate for the management to invest to the extent that the marginal investment return becomes less than the firm’s capital costs (Lawler, 2017). This investment will ensure that the stock prices for the organization fall way below the expected returns in the company. Eventually, the stockholders would be guaranteed quite additional benefits from the improved retained earnings due to the fact the firm would have expanded and large.

More importantly, the approach ensures that there is no risk in the refinancing as well as the fluctuations of the interest rates during the refinancing. However, it must be noted this approach is quite challenging to adopt and involves a lot of risks in its implementation. It is never an easy task to match the assets’ maturity with their finance source and involves a lot of uncertainty on the side of the current asset. It is quite important to understand that a quite aggressive financing approach would ensure financing of the permanent assets of the firm by use of the short-term debts. On the other hand, there is a quite conservative financing approach. This initiates tow situations that must be considered by the management.