Greed Cycle and Additional Articles

Columbia College |

Greed Cycle and Additional Articles |

Dropbox Assignment 1 |

|

Diane R. Hupko |

Greed Cycle Discussion Questions:

What has been the changing nature of the goal of the corporation?

Corporations were initially founded to ensure that large-scale products could be brought to realization be sharing the initial expense of launching a business amongst investors or shareholders. The first publically traded company, founded by Francis Lowell in 1814 allowed American business to compete with foreign companies and reduce domestic reliance on outside business. (Cassidy). Companies were run “in the owner’s interest” and investors willingly turned over control of the functions of business to managers. As technology and the high cost of projects led to the need for investor-backed companies to become a normal practice of business in America. Greed became prevalent as managers started to see that they could take actions that resulted for greater personal gain. The stock market crash resulted in legislation that was meant to protect investors in the form of the Securities Act of 1933 which resulted in public confidence being restores. However, the effects of the legislation were not long lasting as corporate greed resurfaced and executives began taking greater risks with investor money in an effort to bolster their own compensation packages.

What is the relationship between agency problems and the goal of shareholder wealth maximization?

An agency problem is the term for the conflict that arises between a manager trying to please the board of directors with how they run the business and are unable to simultaneously please the shareholders through wealth maximization. Often, it is impossible for managers to please both groups. If there are continual problems with agency problems, it is important, for the well-being of the company to resolve these concerns as quickly as possible.

What are successful and unsuccessful ways in which agency...