a) what should the management of sports products, LTD., pursue as its overriding goal? why?
b) Dose the firm appear to have an agency problem? explain.
c) Dose the firm appear to have an effective corporate governance structure? Explain any shortcomings.
d) On the basis of the information provided, what specific recommendations would you offer the firm?
The Management of the southern semiconductor should pursue the rise in the wealth of shareholder. They should think of long term benefit that affects the stock price and not the short term profit. Currently it looks that the management is concerned about short term benefit as their pay is linked to the profit of the firm at the expense of long term benefit. The stock price of a firm reflects the expected earning of the firm in future. Thus, if firm work in right direction so that investor has confidence in the growth of the firm in future, the price of the stock will rise.
Yes the firm has the agency problem. Agency problem reflects the conflict of company management interest to the company stockholder interest. The firm is currently making profit which is good in term of management interest but at the same time the stock value is decline which is against the interest of the company stakeholder. The management is believes in short term profit as their pay is linked to the profit and have tendency to take risk as the loss is not shared by the management. Ultimately stock price declining reflects negative long term growth for the firm.
Firm approach to pollution control is really not ethical. The firm management approach is to cut cost and increase current profit. They don’t want to put some cost on pollution control. This is not even good for society. Ultimately in the long term firm might faces penalty by the government, which will affect firm future profit. The firm will also not score on CSR activity which is negative for the firm growth. The firm will lose confidence from customer for such activity. Thus in long term it has negative impact on the growth of the firm and thus negative impact on the shareholder.
No the firm does not have the effective corporate governance structure. Corporate governance requires balancing interest between various stake holder to the firm which include, shareholder, customer, management, employee, government and the society. The firm is working only in the favour of the management. The activity of the firm is negatively impacting the shareholder, the employees of the firm and the society
On the information above, the firm needs a restructuring and defining the corporate governance, corporate social responsibility and the ethical issue. The firm need a panel to scrutinize each and every activity of the firm and the decision making by the management. The firm ultimate goal should be to maximize the wealth of the shareholder.