Essay Database

4a) The only ethical obligation of companies is to maximise shareholder wealth. In such a free economy, the companies do have an obligation to use their resources usefully and engage in activities designed to maximise the wealth of shareholders, so long as it stays within the rules of the game. Since the companies buy the goods and services they need for production and sell it to the buyers, the profit really represents the net contribution …

…business activities. (Davis & Blomstorm, 1975) Although there is an argument that it involves a large amount of costs for companies to be socially and environmentally responsible, the exercise of responsibilities at the expense of profits will not carry them very far away as this can be viewed as a long run profit maximisation. Moreover, given adequate incentives via tax relief, subsidies or, more importantly, government cost-plus contracts, the companies can gain very significant benefits.