Assessing the Goal of Sports Products, Inc.

Essay by dasiasmommy February 2010

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Sports Products, Inc. is a key manufacturer of boating equipment and boating accessories. During the past nine months, Sports Products, Inc. has had stock prices decline almost $2 per share, in spite of a rise in profits. The concern of stockholders is that profits are important to management because increased profits increase their income, since they are compensated on the basis of the company's profits, through a profit sharing plan. Stockholders only benefit when the stock prices rise and do not directly benefit from increased profits. Sports Products, Inc. is also being sued for dumping pollutants in adjacent streams by state and federal environment officials because the company is not spending money for effective pollution control. In this paper I will discuss Sports Products, Inc.'s over-riding goal, this firm's agency problems, and evaluate the firm's approach to pollution control. I will also discuss the firm's corporate governance structure and make specific recommendations to the firm.

Stockholders are concerned that they are losing money due to the declining value of the company's shares. As stockholder's, the only way they benefit is for the stock prices to rise. Under the current circumstances, stock prices are decreasing while profits are increasing, which indicates that there is a possible agency problem. The concern of management should be that of the stockholder's, who own and control the firm, the goal of management should be to pursue what is best for the stockholders. Instead management seems to have decided to begin selfishly increasing their own paychecks by taking shortcuts on pollution control. After all, if done properly, effective pollution control would increase costs, decrease profits, and lower management's pay.

Consequently, the lawsuit against the firm initiated by state and federal environmental officials is proof that the firms approach to pollution control is unethical. Incurring the expense...