Question

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.

Answer 1

Through maximizing the value of stock other goals could most

certainly be ignored (unethical behavior, employee safety, etc.).

Companies such as Enron, WorldCom, Tyco, and Adelphia all had

issues develop because of more emphasis being put on the

maximization of market value and value of stock. I’ll use Enron as an

example, through use of accounting loopholes, special purpose entities, and poor financial reporting, Enron was able to hide billions of dollars in debt from failed deals and project from their board of directors and auditing committee. This is an example where many executives used

unethical/illegal behavior to further the company. This caused many of Enron’s shareholders to become affected and file a $40 billion lawsuit.
Thanks