Shareholder return and ethics
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What does it mean to say that managers should maximize shareholder wealth subject to ethical constraints? What ethical considerations might enter into a decision that decreases cash flow or stock price?
Contrast the effort of building a car and building a residential unit. Which one requires more initial capital? What kinds of resources are involved? What are the main differences in their management needs?
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Solution Summary
Shareholders return and ethics is examined. The expert contrasts the efforts of building a car and building a residential units.
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1. An organization has to maximize shareholders wealth subject to constraints which might be ethical or unethical. Managers have to deal with these decisions in day-to-day operations of the organizations as well as in complex business decisions. For example in deciding where to open a new business production unit manager might get swayed by factors which may not be beneficial to the business. Like the location chosen might present good tourist site or represents more prestige for the manager. In such situations while the new location could potentially benefit the company and increase shareholder's wealth, it might not pass the ethical test. These decisions might provide short-term gain to the company, the long-term ...
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