- March 26, 2020
SHAREHOLRES’ WEALTH 4
Themanagers in any business should strive to make sure that their firmsmake a profit from operations. The company forms part of the wealthof shareholders that needs to be managed efficiently. Therefore,management has the mandate to ensure that the enterprise makesmaximum profit. However, in the course of maximizing the benefits,the managers are obligated to abide by the ethics of the firm.Therefore, this paper will offer a discussion aimed at understandingthe statement that managers should maximize shareholder’s wealthsubject to ethical constraints.
Oneof the unethical practices of maximizing profits regards firing anemployee who earns a small salary and employing another at a lessercost. It is not ethical for the business to ignore the society andthe environment around it (Carrol & Shabana, 2010). While thereare ethical principles that the firm needs to follow in itsoperations, the temptation to make more money at the expense of theseis always very high on the part of managers. Maximization of profitsrequires in-depth analysis of the adopted decisions since they affectthe flow of cash in the business. The words “subject to ethicalconstraints” imply that the ethical ideals of the firm must alwaysbe upheld in every transaction.
Someethical practices that can be vital in decision-making includetelling the truth about the products’ quality and the futurepredictions of the movement of money. The moral decisions made bymanagers can affect the cash flow of the firm as well as increase therisks of losing the expected income. As a result, this may lead tothe reduction in the prices of stock in comparison to what they couldhave been if the management observed ethical measures.
In conclusion, this paper elaborated on the meaning of managersmaximizing shareholder’s wealth subject to ethical constraints. Thediscussion concluded that the decisions taken to maximize profitscould be ethical or unethical and have different impacts on the cashflow and stock prices. Therefore, it is imperative that managersobserve ethical behavior in the operations of the business.
Carroll,A. B., & Shabana, K. M. (2010). The business case for corporatesocial responsibility: A review of concepts, research, and practice.InternationalJournal of Management Reviews, 12 (1),85-105.