A firm with a stakeholder focus consciously avoids

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Unformatted text preview: s the primary goal, many firms broaden their focus to include the interests of stakeholders as well as shareholders. Stakeholders are groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well-being but to preserve it. The stakeholder view does not alter the goal of maximizing shareholder wealth. Such a view is often considered part of the firm’s “social responsibility.” It is expected to provide long-run benefit to shareholders by maintaining positive stakeholder relationships. Such relationships should minimize stakeholder turnover, conflicts, and litigation. Clearly, the firm can better achieve its goal of shareholder wealth maximization by fostering cooperation with its other stakeholders, rather than conflict with them. The Role of Ethics ethics Standards of conduct or moral judgment. In recent years, the ethics of actions taken by certain businesses have received major media attention. Examples include an agreement by American Express Co. in early 2002 to pay $31 million to settle a sex- and age-discrimination lawsuit filed on behalf of more than 4,000 women who said they were denied equal pay and promotions; Enron Corp.’s key executives indicating to employee-shareholders in mid2001 that the firm’s then-depressed stock price would soon recover while, at the same time, selling their own shares and, not long after, taking the firm into bankruptcy; and Liggett & Meyers’ early 1999 agreement to fund the payment of more than $1 billion in smoking-related health claims. Clearly, these and similar actions have raised the question of ethics—standards of conduct or moral judgment. Today, the business community in general and the financial community in particular are developing and enforcing ethical standards. The goal of these ethical standards is to motivate b...
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This document was uploaded on 01/19/2014.

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