1. CHAPTER 1: THE CORPORATE GOALS

2. Learning outcomes  Identify the goals of corporation and understand why shareholders’ wealth maximization is preferred over other goals.  Understand the potential problems arising when management of the corporation and ownership are separated  Discuss the issues underlying social responsibility of the corporation

3. Corporation What is corporation?  Separate legal entity that has been incorporated through a legislative or registration process established through legislation  Have legal rights and liabilities that are distinct from their employees and shareholders

4. Main Goal of The Corporation: To maximize the wealth of shareholders Shareholder = Any individual / corporation that legally own a share of stock in any corporation. They are granted several privileges to the corporation

5. Shareholder’s Wealth Maximize shareholder’s wealth Shareholders are able to enjoy more products and services Shareholders have more ‘cash in hand’ DividendsCapital gains Maximize value of the firm

6. Goals of the Corporation  Maximize sales  Minimize costs  Maximize profits  Avoid financial difficulty / bankruptcy  Survive  Be environmental friendly  Achieve good employee – employer relations

7. The Agency Theory Agency Relationship Separation of management and the ownership of the firm Agency Problem Will management act in the interest of shareholders?

8. Solutions to Agency Problem 1.Provisions in the Companies Act, 1965 2.Selling shares and threat of takeover 3.Information flow 4.Linking Management remuneration to improvements to shareholder’s wealth

9. Social Responsibility of the Corporation Management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders Giving back to the community

10. McDonald’s CSR  Community involvement can create brand loyalty, promotes pride and respect  Provide assistance (free food, water, other help) for earthquakes, hurricane, floods and other traumatic events.  30% of franchise owners are women. McDonald’s purchase over $3b worth of goods and services from women supplier.  Purchased more than $4b worth of products made from recycled materials

11. Social Responsibility of the Corporation The relationship between shareholder wealth maximization and social responsibility for the firm?  Attract capital  Provide employment  Offer benefits to its community Sometimes certain socially actions does not provide any profit to the company. ie pollution control projects

12. End of Chapter 1