Principles of Managerial Finance

The theory behind management is to run the company in the interest of the owners, and this is what the management should concentrate on. the managers have a responsibility to run the company to benefit the owners according to the stock-holders theory. Problems would occur if the managers acted or began to pursue their own interests such as those indicated in the above case that runs the company not to benefit the owners but the pursuit for their own gains, i.e. to earn more money because they were partially compensated on this basis. According to the tendency theory which explains the occurrence of such problems, the compensation of the managers’ needs be tied with the stockholders’ interests to avoid possible conflicts (Investopedia, 2009).

The firm seems to be in a problem because its share price has gone down yet its profits are rising. The company seems to be using stock options tied to compensation which was earlier praised as a solution to helping increase shareholder value by management but has reportedly been argued to fail. The management is using this gap for own advantage rather more than concentrating on increasing the value of shareholders (Investopedia, n.d.).

Low share prices may lead to decreased interest by investors as they would think that it is not viable to invest in that firm. The firm may not be then able to raise funds in the money market. In addition, companies experiencing a fall in share price may attract the possibility of take over (Pettinger, n.d.). The company employees seemed working hard to save costs but did not realizing the benefit in the share price. A management problem also exists in the company because it is having difficulties-not working for the interests of the shareholders but for their interests. This would lead to them making decision for their benefits which would have even long term effects on the survival of the company.

Losing trust in this management would lead to a change in management which might come with realignments in the structure of the firm with the associated uncertainty. In addition, there is a lack of improper management which seems not to care much about the interests of cooperate social responsibility by purely or majoring on pursuing profits at the expense of maintaining the environment.

The firms approach to pollution is not ethical. Research has shown that applying corporate social responsibility and ethics in a corporation led to the realization of benefits like financial returns (Moment, n.d.) in addition to more reputation of the firm. Although the management would think that it is a means of increasing costs, social corporate management leads to reduction of wasters, boosted recycling of wastes and better processes and procedures in production or manufacturing leading to the realization of the associated benefits by the company applying it.

Lack of realization of these facts may cost the company further through increased wastes and costly processes and procedures in addition to the associated penalties by the State and Federal environmental authorities that are already complaining. Ethical responsibility among the firms may seem to negatively influence the profits of the firm but application of the principles would lead to improvements in the future.

The firm seems to be failing in employing corporate governance because the management seems to pursue self interest which would be least expected. Although the traditional setting of corporate governance comprised the relationship between managers and the shareholders with some restrictions implied by the state laws, current systems and conceptions entail features of conduct of the corporation as well as entrenching adopting of code of ethics in to laws such as the Sarbanes-Oxley Act (SOA) (Tipgos & Keefe, n.d.).

In the presented case study, it is evident that there are violations to the present concept of corporate governance. This include improper management through poor practice where managers pursue their own interests to make more money through compensation by making sure that profit-making is emphasized through cost saving whereas share price goes down because of other unfavorable operations. In corporate governance, the structure outlines or assigns responsibilities and rights to various stakeholders and enumerates the rules and procedure to govern decision making and/or procedures for making them.

Performance must be monitored in corporate governance in addition to outlining the means of achieving the set objectives (OECD, 1999; “What is corporate governance?”). If it is assumed that this company follows a type of governance where the hired officials are the management team so selected by the stockholders and they operate to oversee and run the company, failure of monitoring of performance by the directors may be evident in the lack of proper conduct displayed by the management to pursue self interests.

My proposal on the improvement of this company is as follows; corporate governance achieves coordinated company operations, better involvement of employees which would lead to utilization of the capabilities and power of the employees. The company needs to adopt the current models of corporate governance which also emphasizes the inclusion of the employee to achieve a balanced governance structure (Tipgos & Keefe, n.d.).

In addition, the company needs to adopt the present models where other stakeholders such as government environmental bodies, the government and institutions are considered as important compliments in the business arena. Collaboration is required with all stakeholders or most of them to ensure that guidelines towards environmental and other concern are developed with interest to current needs and favorable conditions and regulations. This would help the company in its road to achieving business ethics in addition to good corporate governance.


Gitman. Assessing the Goal of Sports Products, Inc. Principles of Managerial Finance, (11th ed.).

Investopedia. Evaluating A Company’s Management. 2009. Web.

Moment Robert. 7 Principles of Admirable Business Ethics. Business Ethics for Small Business. Web.

Pettinger. T. The Problem of Falling Share Prices. Web.

Tipgos Manuel & Thomas Keefe. A Comprehensive Structure of Corporate Governance in Post-Enron Corporate America. The CPA Journal. 2004. Web.

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