Question

Does the goal of maximizing the value of the firm's stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects such as customer and employee safety, the environment, and the general good of society fit in this framework, or are they essentially ignored? Explain your position and try to think of some specific scenarios to illustrate your answer.

Answer 1

Companies' primary goal is to maximize the value of its shareholders. This is a modern approach that most of the companies are adopting. Companies maximize the value of its share price by increasing its sales and profit numbers and also by repurchasing the shares from the market. Yes, This is true that in the light of maximizing the value of firm's stock, other goals like avoiding unethical behavior, customer and employee safety are ignored.

Many companies spend lot of money on maximizing value of its stock. Many accounting frauds happened in the history because management was concerned about the wealth of shareholders. We can take the example of Enron and WorldCom. with the help of accounting loopholes, Enron was able to hide billions of debt. This was the case when many executives did unethical behavior.

Companies should keep in mind that ethical behavior, employees and customer safety, environment friendly are also the most important goals that they should adopt and not avoid. Ethics are the values and principles that differentiate a company from its competitors.