q13 of April 2006 is: "In theory, companies exist to maximise shareholder wealth. In practice, the relationship between shareholders and the directors whom they appoint to mangage their companies appears to suggest that the directors have other motives. Explain why it is difficult for shareholders to be assured that the directors are consistently working to serve in their interests". q13 of Sept 2006 is: "In theory, companies exist to maximise the wealth of their owners. Explain the problems associated with demonstrating that companies actually do operate in a way as to maximise shareholders' wealth". **************************************************** I would have interpreted these questions in roughly the same way and would have given an answer along the same line of thought for both questions. But the examiners' report for Sept 2006 (in their comments) say that candidates ONLY discussed the agency problem and did not get as many marks. Their solutions contain nothing at all about the agency problem. The examiners' report for April 06 discussed the agency problem ONLY and did not discuss measuring shareholder wealth as was done in the September paper. Again, the number of points written covered in the solutions to these 2 questions differ greatly. How would one distinguish between what sort of answer to give when approached with a similar scenario? Is it just me, or is there some element of a double standard here?
Have careful read of the questions. There is a difference. Sept 06 is asking: Is it possible to demonstrate that the agents look after the interests of the owners, in particular that they act so as to maximise the owners’ wealth? The key to this question is to focus on demonstrating that this is happening, rather than discussing the various tools available to shareholders to encourage it.
