Assessing the Goal of Sports Products, Inc.

1124 Words Feb 3rd, 2011 5 Pages
Running head: TEXT CASE STUDY 1 TEXT CASE STUDY � PAGE * Arabic * MERGEFORMAT �2�

Assessing the Goal of Sports Products, Inc.

FIN/419: Finance for Decision Makers



Assessing the Goal of Sports Products, Inc.

Many people believe that the primary objective of a firm is to maximize profits. Sports Products, Inc. is a firm who has followed this practice during its 20 year history. The management of Sports Products, Inc. has concentrated on maximizing profits while ignoring other critical factors. Management's decision to maximize profits has created issues with its overriding goal, agency problem, approach to pollution control, and corporate governance. In order for Sports Products, Inc. to resolve the issues, changes need to be made in
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Expenses to control pollution may have decreased profits, but Sports Products, Inc. would not have created a negative public image that impaired its competitive advantage. Stockholders would not have sold their stock in recognition of lower cash flows, and the price of shares may not have fallen. By controlling pollution the firm could have eliminated litigation, enhanced its corporate image, and shareholder confidence and loyalty could have been gained, thus enhancing cash flow and increasing price share.

CORPORATE GOVERNANCE

Sports Products, Inc. does not appear to have an effective corporate governance structure because "a well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws" (SearchFinancialSecurity, 2010, para. 2). The failure in the structure appears to begin with the board of directors. The board should have established and monitored goals, plans, and policies on behalf of the shareholders. Dividends should have been paid, a profit-sharing plan for management should have never been approved, and unethical actions should have never occurred. Monitoring by the board should have eliminated any activities not within policy.

RECOMMENDATIONS

On the basis of the information provided, the first recommendation

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