Other People’s Money

The main goal and purpose of a business organization is to produce financial success for those working in it. There are a vast amount of corporations here in the United States and internationally that execute social responsibility purely from a self-interest perspective. For example, businesses may contribute to the community through its political relationships. Politicians influence how business transactions operate and the relationships are important because they are the backing corporations could need.

The argument against this political motivation factor for corporate social responsibility is that these are simply wrong doings. Other would believe that the company’s goal should be to conduct healthy business instead of focusing on political or social relationship. This ideology would say that businesses interest should be broader than simply their self-interests.

Companies that do practice corporate social responsibility can feel morally obligated to give back to the community in the area of which their business is conducted. A small mom and pop business could be the sole source of income for the area it is in and giving back to that small community would be considered the ethical thing to do. A larger corporation could hire numerous employees in the area they operate and therefore feel more socially responsible to take care of that area.

The counter argument would be that these corporations pay huge amounts of taxes and therefore are already giving back enough. From a local and state perspective these huge tax dollars corporations pay go directly towards support the community as whole for things such as construction, prisons, schools, roads, etc. A corporation could easily make this argument because their tax dollars come at a huge price and do make improvements.

Other People’s Money is a Hollywood film from 1991 with Andrew Jorgenson and Danny DeVito. Concepts explained in the movie are real life depictions of dilemmas that businesses go through. The issue at hand is whether a business is obligated to focus strictly on increasing its stock price.

During the board election speeches scene of the movie Danny DeVito (Lawrence Garfield) counters Andrew Jorgenson (Gregory Peck) by saying that the responsibility of a company is not to please its community and employees and rather it’s all about the money. The reason the business started and the shareholders invested is because of the money. He says that this particular business lost sight of the market they are in. The company, New England Wire and Cable, has money but the market, but it is dead. Andrew Jorgenson is making a plea for the shareholders to stay loyal to what is made out to be a family or friend relationship between management and shareholders. Danny DeVito describes how even when times are tough the business did not make changes to help use shareholders money wisely.

A company has to make decisions on whether to focus on future plans and community perspective of the company or stock price. Every company wants to be socially responsible and accepted through its actions, but sometimes these are not the most profitable. CEOs that do choose to aim for higher stock price can be accused of being short sighted. Without a long term corporate structure in place in our country this could turn our economy into depression. These are tough decisions that CEOs have to make in order to bridge the gap between pleasing its shareholders with money and pleasing the economy and country with long term responsible plans.

Danny DeVito explains value of investing in a different scene by analyzing the company’s liquidation value versus its market value. He shows how the stock is being sold at a bargain and not showing the true value of what the company is worth. He shows how the lack of relevance of historical based accounting can provide a discrepancy on what stock price should be. If the stock price is higher and represents more of a book capital figure rather than a market capital figure than the return on investments for shareholders is higher. This is the main goal according to Danny DeVito, as the concern for shareholders is all in the money.

Leave a Reply

Your email address will not be published.