- Ethics and Firm's Goals & Cash Flow
- Can goals like avoiding unethical or illegal behavior be in conflict with the goal of the firm? How does this complicate the agency problem? Fully explain your reasoning in at least 200 words.
- Goals like avoiding unethical or illegal behavior cannot be in conflict with the goal of the firm. The reason is that an organization that operates ethically has many advantages including avoiding fines and litigation (Ross, Westerfield & Jordan, 2006). An organization that operates ethically creates a competitive environment and has the ability to protect or increase capital value. The disadvantages that come with an organization operating in unethical behavior include lower productivity of the firm’s output. In addition, unethical behavior results to employment of many unskilled employees because of corruption practices. Lower financial performances are a result of unethical behaviors that may occur in an organization.
- In most cases, the upper-level management in an organization manifests the behaviors that contradict with the performance of an organization. The result of these behaviors is poor communication from the management to the junior workers in the organization. Unethical behaviors are a great risk to the quality professionals because they tend to have low decision-making ability. Data that help the management to make decisions that will make an organization achieve its strategic goals are venerable to unethical manipulation. Considering the above disadvantages that result when an organization engages in unethical behaviors, it is reasonable to argue that a company that sets the goals of avoiding unethical behaviors results in gaining more advantages (Ross, et al, 2006).
- Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
- A corporation being a set of contracts among several stakeholders entitled to services provided and has the legal right to manage the set of assets allocated, refers to no one as the owner. The state is the one that creates a corporation in which it is a legal entity and separate from the shareholders (Cleland & Gareis, 2006). Using an example of a corporate form of ownership, the shareholders may be the owners of a certain organization. The ownership can be demonstrated in the fact that the shareholders have the right to elect the directors of the corporation. The directors in turn appoint the managers eligible to run the organization’s activities. The main reason that an agency relationship exists in the corporate form of an organization is that one person has a legal right to act on behalf of another person. This means that a corporation is well defined as an artificial entity. The problem that may arise in the corporate form of organization is separation of ownership (Turner, 2010).
- Goal of the Firm Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
- The answer is yes because the managers ought to concentrate more on the shareholders wealth. To support that answer, there is a possibility of increasing the short-term profit of a certain organization in order to build a strong foundation of the future long-term performances and profit making. In addition to the above explanation, it is right to say that the short-term variations may sometimes cause variations that are disproportionate in the market prices of the organizations stock (Westerfield, 2006).
- Ethics and Firm Goals Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety, the environment, and the general good of society fit in this framework, or are they essentially ignored? Try to think of some specific scenarios to illustrate your answer."
- There is a possibility of various conflicts to arise because of the goal outlined by an organization. The conflict may be between stockholders and management probably in large organizations. The above outlined subjects like the environment, customer and employee safety ought not to be ignored because they play a significant role in maintaining active business operations. For example, in regard to executive compensation, some top management officials receive a too high salary that ought to be cut back. An example of such a scenario was in the year 2002-2006 when CEO of Yahoo an excessive amount of over $432 million (Chaston, 2009).
- Additional Questions and Answers
- How would you describe East Coast Yachts’ cash flows?
- The operating activities of East Coast Yacht demonstrate that there is a room of noticeable development. The incoming of cash is more than the outgoing cash that shows that the organization is getting more profits.
- Which cash flows statement more accurately describes the cash flows at the company?
- The balance sheet clearly demonstrates the accurate figures of the organizations’ activities.
- In light of your previous answers, comment on Larissa’s expansion plans?
- There is a high probability that the expansion plans of Larissa will come to be true. It is possible to achieve the target that Larissa has set.
- References
- Ross, S. A, Westerfield, R & Jordan, R. D .(2006). Fundamentals of corporate finance, Volume 1. New York: McGraw-Hill/Irwin.
- Turner, R. (2010). Perspectives on Projects. New York: Taylor & Francis.
- Cleland, D. I. & Gareis, R. (2006). Global project management handbook: planning, organizing, and controlling international projects. New York: McGraw-Hill.
- Westerfield, R. , Ross, S. A, & Jaffe, J. (2006). Corporate Finance. New York: McGraw- Hill/Irwin.
- Chaston, I. (2009). Entrepreneurial Management in Small Firms. New York: SAGE Publications Ltd.
940 Words 3 Pages
