Ethics Questions

Acquisition and Restructuring Strategies

1. Some evidence suggests that there is a direct and positive relationship between a firm's size and its top-level managers' compensation. If this is so, what inducement does that relationship provide to upper-level executives? What can be done to influence the relationship so that it serves shareholders' interests?

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2. When a firm is in the process of restructuring itself by divesting some assets and acquiring others, managers may have incentives to restructure in ways that increase their power base and compensation package. Does this possibility explain at least part of the reason for the less-than-encouraging outcomes of acquisitions for shareholders of the acquiring firm?

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3. When shareholders increase their wealth through downsizing, does this come, to some degree, at the expense of loyal employees-those who have worked diligently to serve the firm in terms of accomplishing its strategic mission and strategic intent? If so, what actions would you take to be fair to both shareholders and employees if you were charged with downsizing or "smartsizing" a firm's employment ranks? What ethical base would you employ to make decisions regarding downsizing?

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4. Are takeovers ethical? If not, why not?

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