Reference no: EM132936253

Agency problems have been an issue with large organizations throughout recorded history. It has been said when God hired Adam and Eve to oversee His creation, it created an agency problem. Today, governance procedures should help align a company's behavior with the priorities of its owners. However, a single company may have thousands of stockholders. These stockholders generally don't have the time or inclination to get personally involved in the day-to-day operations of the companies they have invested in. They have little choice but to trust the agents they have hired will act in their best interests. Additionally, there are often disagreements about what a corporation's priorities should be.

• In 1951, a stockholder sued manufacturing company A.P. Smith over alleged misuse of his funds. In an apparent failure of their governance systems, the company's executives had decided to make a large donation to the engineering school at Princeton University. The stockholder argued if he had desired to make a charitable gift, he would have done so on his own. He did not appreciate the company diverting money he had intended to fund their operations and instead using it for a cause that had no economic benefit (Pierce, 2015).

• Despite this stockholder's protestations, an appellate court ultimately ruled philanthropy was an acceptable use of funds, presuming such a gift might engender goodwill towards the corporation (Pierce, 2015). This ruling encouraged more companies to follow suit. By the 1960s, several "5 percent clubs" (Vogel, p. 20) had emerged in the United States. These groups were made up of companies who had committed to give at least 5% of their pretax earnings to charity.

• In 1970, famed economist and Nobel Prize winner Milton Friedman responded to this movement. In an article for New York Times Magazine, he boldly proclaimed, "there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits" (p. 126). He went on to say anything else was "collectivist doctrine...and fundamentally subversive" (p. 126). This article became the focus of four decades of scholarly debate.

Problem 1: What is the primary goal a publicly traded corporation should pursue and why?

Problem 2: Support your position with at least one biblical principle with a specific Bible verse that you feel is relevant to the situation. Explain how and why it applies.