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Five years ago, Caesar created a plant-care business that grew, stocked, and maintained fresh plants in office buildings throughout Raleigh. Over time, The Green Zone Inc. (TGZ) has grown from a proprietorship into a corporation, now reaching far beyond Raleigh. To finance and support this growth, TGZ issued shares that were sold to TGZ employees, Caesar's family members, and selected outsiders. Caesar is TGZ's chairman of the board of directors and CEO, but he is no longer the largest shareholder. At the latest annual meeting, two mutually exclusive proposals were placed on the ballot for discussion and vote. The first was put forth by Caesar and TGZ's management team, and the second was proposed by a small group of other shareholders. Both groups are adamantly opposed to the other group's proposal, even though both proposals would likely have the same effect on TGZ's value and riskiness. Does an agency conflict exist between TGZ's management and the small group of opposing shareholders? Yes; an agency relationship exists, and an agency relationship always gives rise to agency conflicts, regardless of the actual behavior of the participants. O No; Caesar was the original owner of TGZ, so he would always be sensitive to the concerns of the firm's current owners (shareholders) and would not engage in an agency conflict. Yes; any conflict or disagreement between the firm's managers and its shareholders constitutes an agency conflict. O No; although an agency relationship exists between TGZ's management-including Caesar as TGZ's chairman and CEO and the firm's shareholders-there is no agency conflict, because no expropriation or wasting of the shareholders' wealth has occurred. Which of the following actions will help ease agency conflicts and better align managers' objectives with the firm's shareholder wealth? O Pay the manager a large base salary with a huge stock option package that matures on a single date. O Pay the manager a combination of salary and stock options (phased in over several years) that reward him or her for consistently increasing shareholder wealth. Great Fortunes Baking Company's stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Great Fortunes Baking Company's stock, direct shareholder intervention would be likely to motivate the firm's management. In the late 1980s and early 1990s, Congress passed legislation making it more difficult for outside investors to stage hostile takeovers. This legislation likely conflicts between managers and stockholders

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