Question
Sureet has just been appointed a director and the CEO of Astra Corp, which carries on dry cleaning businesses at locations across Canada. The shares
Sureet has just been appointed a director and the CEO of Astra Corp, which carries on dry cleaning businesses at locations across Canada. The shares of Astra Corp are listed for trading on the Toronto Stock Exchange. Sureet wants the business to be known as an excellent employer and good corporate citizen. He plans to cause the corporation to adopt a policy of paying its employees 25 percent more than is paid by its competitors and to give generously to local charities in every city in which Astra carries on business. He is convinced that this strategy will be a good one for the business in the long run. He will be able attract and keep good employees, which is hard to do in the dry cleaning industry. Also, he thinks that his strategy will be attractive to customers. He acknowledges, however, that it will be costly and, at least for the first few years while the reputation of the corporation improves, is likely to result in lower profits and less cash flow available for creditors. His chief financial officer has advised him, however, that there will be no significant increase in the risk that creditors will not be paid. Should Sureet adopt this strategy? What process should he follow to do so?
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