Author Question: Describe the various reasons due to which managers may follow goals that promote their own interests ... (Read 86 times)

cabate · **on:** Jul 7, 2018

Describe the various reasons due to which managers may follow goals that promote their own interests and not the interests of shareholders.

What will be an ideal response?

Question 2

Another term for laboratory learning is _____.

a. encounter groups
b. Johari Window
c. wellness program
d. Transactional Analysis
e. meditation

alexisweber49 · **Reply #1 on:** Jul 7, 2018

Answer to Question 1

When shareholders delegate to managers the right to coordinate and use organizational skills and resources, a divorce of ownership and control occurs. Although in theory managers are the employees of shareholders, in practice because managers have control over organizational resources, they have real control over the company even though shareholders own it. The result is that managers may follow goals that promote their own interests and not the interests of shareholders.

An attempt to maximize stockholder wealth may involve taking risks into uncharted territory and making capital investments in R&D that may bear fruit only in the long term as new inventions and discoveries generate new products and a stream of new revenues. Managers, however, may prefer to maximize short-term profits because that is the goal on which they are evaluated by their peers and by stock market analysts who do not take the long-term view.
Also, because managers' salaries are closely correlated with organizational size, managers may prefer to pursue low-risk strategies even though these may not maximize return on invested capital.

Answer to Question 2

a