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CHAPTER 3 Business Governance, Ethics, and Social Responsibility 105

also ultimately led all three companies into bankruptcy and wiped out over $200
billion in shareholder value. Incidentally, highly reputable accounting firms signed
off on all these inflated accounting reports—but that involves another sort of con-
flict of interest. Enron’s accounting firm, Arthur Andersen, for example, was receiv-
ing $52 million in fees annually from Enron, and was thus very reluctant to raise the
company’s wrath by questioning what it was doing. 11

Empire Building. Another area where a potential conflict of interest arises
between the shareholders of a corporation and those who control it on a day-to-
day basis, its executive officers and its directors, is with respect to the growth of the
company—empire building. CEOs in particular are often interested in expanding
the business via acquisitions or other methods. Part of the reason for this is the fact
that CEOs (and other corporate officers) typically get paid on the basis of the size
of the operation they run; the CEO of a manufacturing company generating $2 bil-
lion in annual sales will generally be paid considerably more than the CEO of a
manufacturing company generating $900 million in annual sales. Also, running a
larger corporation enhances the CEO’s power and prestige in the business com-
munity, and likely his or her marketability on the executive job market.
However, while corporate acquisitions are almost always good for the share-
holders of the firm being acquired (who usually receive a nice premium for their
stock), the impact on the long-term shareholders of the firm doing the acquiring is
frequently far less sanguine. Many corporate acquisitions don’t, for a wide variety of
reasons (e.g., purported synergies are not achieved, corporate cultures don’t mesh),
work out and indeed ultimately end up doing harm to the acquiring company long
after the CEO who engineered the acquisition has retired. In sum, while empire
building may be good for company executives, it isn’t always good over the long run
for company shareholders.

Information Access. The separation of ownership and control in today’s large
modern public corporation also results in large disparities in access to informa-
tion about the company among principals, shareholders, agents, and corporate

© Mike Peters, Dayton Daily News,
March 17, 2002. Reprinted with special
permission of King Features Syndicate.

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.