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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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