Question

Can the 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 such as 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.

2. Critics have charged that compensation to top management in the United States is too high and should be cut back. For example, focusing on large corporation, in 2017, First Data CEO made about $102 million and Live Nation CEO made about $71 million. Are such amounts excessive? In answering, it might be helpful to recognize that superstar athletes, top entertainers, and many others at the top of their respective fields earn at least as much, if not more.

Answer 1

The goal of maximizing the value of stocks has conflicted with other goals such as avoiding unethical or illegal behaviour in the past. In particular, subjects such as customers and employee safety, the environment and the general good of society fit in this framework has been ignored in some of the historical cases. Though this goal temporally achieves the objective of maximizing the stock value by ignoring other goals but un the end it has impacted society and the organisation in the long run in terms of the damage in the brand image and continuity of business. We can take the example of the company Enron, for which the stock price spiked up due to manipulation of books of accounting. Later on it collapsed and it affected thousands of employees and customers as a whole. Hence, maximizing the value of stocks by ignoring other goals or avoiding ethical behaviour or through illegal behaviour is not a feasible practice though it has been implemented in many companies earlier.

Coming to the opinion of the critics who have claimed that the compensation of top management in United States is too high and they have demanded there pay to be reduced is appropriate due to below cited reasons.

First of all, CEO of the companies cannnot be compared to superstars athletes and top entertainers because CEO works for the company. According to the business law, company is an artificial person for which all top management as well as below rung emplayees. Hence, their compensation should depend on performance and profitability of the business.

Secondly, companies run not only due to top management but also other stakeholders like employees and government regulations. Whereas, the compensation of athletes and entertainers is solely dependent on their own performance. Hence, CEO and other top management compensation can be cut if necessitated for the betterment of the organization and it cannot be compared with the superstars and top entertainment or any other top of the field person.