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Unformatted text preview: rectly addressing the issue of ethics by
establishing corporate ethics policies and requiring employee compliance with
them. Frequently, employees are required to sign a formal pledge to uphold the
firm’s ethics policies. Such policies typically apply to employee actions in dealing
with all corporate stakeholders, including the public. Many companies also
require employees to participate in ethics seminars and training programs. To
provide further insight into the ethical dilemmas and issues sometimes facing the CHAPTER 1 The Role and Environment of Managerial Finance 19 financial manager, a number of the In Practice boxes appearing throughout this
book are labeled to note their focus on ethics. Ethics and Share Price
An effective ethics program is believed to enhance corporate value. An ethics program can produce a number of positive benefits. It can reduce potential litigation
and judgment costs; maintain a positive corporate image; build shareholder confidence; and gain the loyalty, commitment, and respect of the firm’s stakeholders.
Such actions, by maintaining and enhancing cash flow and reducing perceived
risk, can positively affect the firm’s share price. Ethical behavior is therefore
viewed as necessary for achieving the firm’s goal of owner wealth maximization.5 The Agency Issue Hint A stockbroker
confronts the same issue. If she
gets you to buy and sell more
stock, it’s good for her, but it
may not be good for you. We have seen that the goal of the financial manager should be to maximize the
wealth of the firm’s owners. Thus managers can be viewed as agents of the owners who have hired them and given them decision-making authority to manage
the firm. Technically, any manager who owns less than 100 percent of the firm is
to some degree an agent of the other owners. This separation of owners and managers is shown by the dashed horizontal line in Figure 1.1 on page 7.
In theory, most financial managers would agree with the goal of owner
wealth maximization. In practice, however, managers are also conce...
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This document was uploaded on 01/19/2014.
- Fall '13