I’m working on a accounting question and need support to help me learn.
The text argues that the goal of management is to maximize the market value of the stock and the wealth of its stockholders. Argue for or against this position and address whether the welfare of other stakeholders like employees/customers and society as a whole should be considered. Do you see a trend emerging in today’s economy?
Guidelines for the response
first student response
The goal of the board of directors is to increase the dollar valuation of a company and provide wealth to shareholders. However, the existence of that company also has an effect on the lives of its employees, the community wherein it operates, and the world. Directors should operate with the goal of ensuring that the company maintains a strong stock price because this prevents potential buyouts and hostile takeovers from competitors. They should also maintain a strong order book because this ensures the company can continue to grow and provide wealth to its shareholders. Managers, who report to the board of directors, are responsible for ensuring that employees are focused not on the stock price and valuation but on the efficient operation of the daily tasks to keep the company growing. Managers sometimes have the unpopular job of dealing with the needs of directors to maximize profits at any cost while simultaneously having to uplift employees who report to them by encouraging better work principles and minimizing wasted resources. Managers at some companies may focus more on the profits than the lives of the employees, which potentially creates a negative working environment. This then leaks out into the personal lives of employees, which can affect the families and the community of each employee. Many large companies offer stock purchase plans for employees, which turn employees into shareholders, and they are then more interested in the continued growth of the company and are more motivated to add value where possible. This trend continues to spread as more companies adopt this program, and it also strengthens the company by encouraging loyal employees to continue at the company longer than companies where employees have no stake in the corporate profits.
seconds students respond
In the first chapter specifically section 1.4 the text states that the goal of financial management is to maximize the current value per share of the existing stock. That the goal of maximizing profits may refer to either the “long-run” or “average” profits but that can pose a series of questions. No one knows what will happen in the long run and the numbers can fluctuate meaning that they can change constantly and that they may have little to do with what is even good or bad for the specific firm at hand.
The goal of the board of directors is ultimately to increase the dollar value of a company and to also provide the wealth to the specific shareholders but there are so many other factors to consider. The employees and their livelihoods, the world as a whole and the whole corporation. I do believe that the sole purpose of anyone that has high ranks at a company is to be doing what is best for the company and ensuring that the company does indeed maintain a decent stock price because if so it can prevent potential buyouts and other companies coming in as destructive competitors. People tend to believe that managers of a firm are always the owners and that is not the case. The managers who report to the board of directors are usually the ones responsible for making sure that employees are focused on the day to day routines of the company and not so much on stocks and prices etc. I disagree by the simple fact that if we allow managers or directors to maximize the market value and devote majority of the time to that eventually some managers or even stockholders may begin to spend much more time on the profits than on the employees who do their job by reporting to them and doing what is asked of them at all times. This can form a toxic and hostile work environment. Unfortuantely this is nothing new and is happening in a lot of companies where regular employees are not reaping any benefits from it.
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