Midterm Essay Example | Topics and Well Written Essays - 1500 words

Midterm - Essay Example Sometimes the agents like the employees, creditors and the stakeholders want the managers to look beyond just protecting their interests and help them maximize the wealth, besides acting as protector of the interests. This concept or the need to maximize the wealth of the stakeholder that arises is part of the shareholder model (Bagchi 447-462). The shareholder model ensures that the managers do everything to make sure that the wealth is maximized as much as possible. The two types of model cannot remain side by side or go hand in hand. The managers have to choose to settle between either maximization of the shareholder wealth and the overseeing that the rights of the creditors, employees and the stakeholders are protected at any cost. This can be explained with the help of the following example. In order to increase the shareholder value following the shareholder model, the managers take debt which increases the chances of bankruptcy (Bougheas 233-263). If the debt fund is able to g enerate the required return, then the company can pay for both its shareholders as well as the creditors. On the other hand the extra debt increases the chances of agency cost. The agency is thus obliged to pay for the extra debt and puts the agency in a risky position. So choosing to maximize the shareholder value the managers have put the employees, stakeholders, and the employees into a crisis. In reality the management or the principle is expected to make sure that whatever decisions that are taken by them, the oath taken to protect rights of the interests are not jeopardizes at any cost. The concept of investment involves maximization of wealth and that is what shareholders keep looking for in any investment. The adoption of the stakeholder concept comes in direct confrontation with wealth maximization concept. Without maximization of wealth, there is no point to invest. So I agree that the stakeholder theory sounds goods in social theory but does not work in practice. Question 2 I agree that the cost/benefit analysis sometimes lead to flawed ethical results. Cost benefit analysis involves weighing the cost of carrying out an object with its subsequent benefits. Most of the time the comparison is done by indicating the margin by which benefits outweigh the cost. Human beings have the tendency of measuring the benefits by the level of human satisfaction achieved (Deborah 879-911). Since the ultimate aim of all such endeavour is uplift of human satisfaction level, so all the benefits are measured in the light of human satisfaction. It may happen that the achievement of such results or benefits may come in direct confrontation with ethics. For example in constructing a company there is a cost/benefit analysis. The costs include the capital and manpower, and the benefits include the long term service of the company towards the society. Very often the managers as well as economists fail to note the cost of ecological imbalance. It is in our own interest that t he environment be protected since wanton destruction of ecology is in fact a serious unethical practice. This little fact is however overlooked in the cost/benefit analysis math. Corporate sustainability helps a company to improve the consumer and employee for a long term basis. It helps to create green strategy. This strategy is developed keeping in the focus the natural environment surrounding the company. The natural environ