Assessing the Goal of Sports Products, Inc

Sports Products Inc.

is a large producer of boating equipments and accessories. The two key players within this organization is Loren Segura who works as a Clerical assistant in the accounting department and Dale Johnson who works in the shipping department. Both team members had a concern about the company profits and was equally concerned about the stocks declining in value therefore, Loren and Dale try to strategize what is important to management and how the current options affect their pay directly.

(Gitman,2009)

Solution

a. What should the management of Sports Products, Inc. pursue as its overriding goal?

Why? Sports Products Inc. will definitely want to maximize their shareholders wealth, which should be the most important goal of an organization although; profit is required to increase the dividends of the company. The managers in Sports Products Inc. must focus on how the organization will continue to profit however; shareholders wealth will increase or maximize while they focus on maintaining their status of providing excellent boating equipment and accessories to their clientele.

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The firm will also need to come up with a way to incorporate pollution control for the existing problems and a way to pay the additional cost it will incur.

The study indicates that the firm has never paid any cash dividends in their twenty-year history and this is how stockholders receive their profit from the organizations earnings. Shareholders fall secondary when it comes to receiving cash dividends or profit because, a shareholder only profits after everyone else in line has received their payments such as the organizations creditors, or suppliers which explains why Sports Products Inc. is being sued by various officials for dumping waste in adjacent streams. The company has chosen not invest in paying for pollution control as this will increase cost to the company and lower the company profit margin. By the shareholders, owning the firm places them at a greater risk and by them owing other companies for risking pollution no one will want to invest in the company although, the profits are rising there is no increase in the firm’s stock price.

b. Does the firm appear to have an agency problem? Explain.

There does appear to be an agency problem because, regardless of Dales and Loren efforts to manage their jobs by trying not to waste packaging material and performing their job as cost-effective as possible the stock price is still declining $2 per share over a 9 month period which is a large decline under a year time-frame. The company also, does not seem to be concerned about incorporating a pollution control program because; the company is concerned over the cost to themselves and their company profit margin.

c. Evaluate the firm’s approach to pollution control. Does it seem to be ethical? Why might incurring the expense to control pollution be in the best interests of the firm’s owners despite its negative effect on profits?

To be honest, I am unsure why this would happen ethically. Sports Products Inc. will eventually have to take responsibility on a higher level if these other companies go through with the lawsuits. Therefore, the organization will be forced into either incorporating a pollution control plan or paying fines, which will reduce shareholders wealth even more because, at this point the shareholders cannot receive anything until their creditors are paid in full.

d. Does the firm appear to have an effective corporate governance structure? Explain any shortcomings.

The structure of Sports Products Inc. appears poorly structured. The management teams are not focused on the shareholders wealth at all. The management structure wants to maintain company profit to break even however, they are not concerned about dumping waste into streams or, creating a pollution control plan. The company is not assuring their stockholders wealth is maximized and if they have not paid cash dividends in 20 years they are just trying to stay in business however, they are not taking care of their employees who work from them everyday nor, does the company have the shareholders best interest at heart.

e. On the basis of the information provided, what specific recommendations would You offer the firm?

Based on the case study I would recommend Sports Products Inc. forming a better plan that will not just break even however, strategize how to incorporate a pollution control program that will be cost-effective and not affect profits if possible. I would recommend that they incorporate better ethical values that will show integrity to their constituents and internal employees. The organization will need to continue to profit but they also, need to ensure that the shareholders get a piece of the pie in addition, to changing the standards that have been in place for 20 years.