Advance Corporate Finance Pre Assignment

The pre-assignment for the Advance Corporate Finance class was to write a two-page paper answering four questions: 1) Should a company’s primary goal be to maximize the wealth of its stockholders? 2) Would the firms’ managers, employees, customers, suppliers, and “clear-headed citizens” all agree that management should focus primarily if not solely on wealth maximization? 3) What other goal or goals might management focus on? 4) If a firm’s directors believe that management should focus primarily on shareholder wealth maximization, what actions could they take to insure that management focuses on this goal? The contents of this paper will answer the aforementioned questions and provide a supporting argument.

In response to the first question, to say that a company’s primary goal should be to maximize the wealth for its stockholders is one of several responsibilities that should be considered when considering the sustainability of a company. I believe a publicly traded company should focus on its employees, its shareholders, as well as it customers – all are very important to the overall longevity and success of a company. The employees keep the company running and share a common interest in supporting the company’s mission while achieving the company’s goals and objectives. The company could not exist or function without employees. Its shareholders are equally important; they in essence own a portion of the company. In order to be a vital, sustainable company in these tough economic times, one must demonstrate the potential for positive earnings and dividends to keep its shareholders pleased. Lastly, customers are just as important as the employees; they provide money to the company and help steer the supply and demand.

In response to the second question, I do not believe this concept would be embraced by the firm’s managers, employees, customers, suppliers, and “clear headed citizens”. One would have to ask the question, “what’s in it for me”. Multiple,...