Strategic Management: Financial management

The role of managers

The task of the finance function

Primary objective

The primary objective of a business is shareholder wealth maximisation

Not the same as profit maximisation

To achieve wealth maximisation the needs of other stakeholders must be considered

High ethical standards may be needed to maximise shareholder wealth

Shareholder wealth maximisation

Profit maximisation problems

Stakeholder approach – problems

Relationship between risk and return

The role of business ethics

Business ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce.

Violations of these standards in finance involve a variety of actions: “creative accounting,” earnings management, misleading financial forecasts, insider trading, fraud, excessive executive compensation, options backdating, bribery, and kickbacks.

Negative publicity often leads to negative impacts on a firm.

The role of business ethics: considering ethics

Robert A. Cooke, a noted ethicist, suggests that the following questions be used to assess the ethical viability of a proposed action:

– Is the action arbitrary or capricious? Does the action unfairly single out an individual or group?

– Does the action affect the morals, or legal rights of any individual or group?

– Does the action conform to accepted moral standards?

– Are there alternative courses of action that are less likely to cause actual or potential harm?

The role of business ethics:
ethics and share price

Ethics programs seek to:

– reduce litigation and judgment costs

– maintain a positive corporate image

– build shareholder confidence