Loren Seguara and Dale Johnson both work for Sports? Products, Inc., a major producer of boating equipment and accessories. Loren works as a clerical assistant in the Accounting? Department, and Dale works as a packager in the Shipping Department. During their lunch break one? day, they began talking about the company. Dale complained that he had always worked hard trying not to waste packing materials and efficiently and? cost-effectively performing his job. In spite of his efforts and those of his? co-workers in the? department, the? firm's stock price had declined nearly $ 2.00 $2.00 per share over the past 99 months. Loren indicated that she shared? Dale's frustration, particularly because the? firm's profits had been rising. Neither could understand why the? firm's stock price was falling as profits rose.
Loren indicated that she had seen documents describing the? firm's profit-sharing plan under which all managers were partially compensated on the basis of the? firm's profits. She suggested that maybe it was profit that was important to? management, because it directly affected their pay. Dale? said, "That? doesn't make? sense, because the stockholders own the firm.? Shouldn't management do? what's best for? stockholders? Something's? wrong!" Loren? responded, "Well, maybe that explains why the company? hasn't concerned itself with the stock price.? Look, the only profits that stockholders receive are in the form of cash? dividends, and this firm has never paid dividends during its? 20-year history. We as stockholders therefore? don't directly benefit from profits. The only way we benefit is for the stock price to? rise." Dale chimed? in, "That probably explains why the firm is being sued by state and federal environmental officials for dumping pollutants in the adjacent stream. Why spend money for pollution? control? It increases? costs, lowers? profits, and therefore lowers? management's earnings!"
Loren and Dale realized that the lunch break had ended and they must quickly return to work. Before? leaving, they decided to meet the next day to continue their discussion.
To Do
a. What should the management of Sports? Products, Inc., pursue as its overriding? goal? Why?
b. Does the firm appear to have an agency? problem? Explain.
c. Evaluate the? firm's approach to pollution control. Does it seem to be? ethical? Why might incurring the expense to control pollution be in the best interests of the? firm's owners despite its negative effect on? profits?
d. Does the firm appear to have an effective corporate governance? structure? Explain any shortcomings.
e. On the basis of the information? provided, what specific recommendations would you offer the? firm?