MANAGING SOCIAL ENTERPRISE: FINANCE

The textbook authors argue that the primary role of the financial manager should be to maximize the market value of the firms common shares. This definition of the role is somewhat problematic even in the conventional corporate world because it assumes that socially-desirable attributes (such as business ethics, sustainable practices, etc.) are implicitly recognized and rewarded by the investing public and are, therefore, reflected in share price because investors value firms that demonstrate these attributes more than firms that do not. The concept of the agency problem where the actions of an organizations managers (and, by extension, its other employees) do not align with the desires of the shareholders for stock price maximization.

QUESTIONS

1. Write on whether (and, if so, how) the primary role of financial managers should be adjusted in the context of social enterprises and/or how concepts related to the agency problem translate into the social enterprise context (i.e. does the traditional agency problem exist in the context of social enterprises?

2. Does the traditional distinction between principals and agents make sense in the context of social enterprises?