Candidates were asked here to explain ways in which a company’s directors could be encouraged to achieve the objective of shareholder wealth. Answers were of variable quality, with some answers not addressing the question that was asked. The question directly addressed section A3e in the F9 Study Guide, which refers to ways to encourage the achievement of stakeholder objectives.

If directors are not consistently seeking to achieve the objective of maximisation of shareholder wealth, then an agency problem exists and ways to encourage directors to achieve the objective can be looked for. In this context the Study Guide refers to reward schemes (such as performance-related pay and share option schemes) and regulatory requirements (such as corporate governance codes of best practice).

Some candidates did not refer to directors at all and discussed ways in which shareholder wealth could be achieved, such as accepting investments with a positive NPV, decreasing a company’s cost of capital, increasing dividends per share and so on. Such answers did not address the question requirements.