An owner, who has recently bought a large stake in a company producing
cellucose has asked you to revise the company's policy on corporate
government. More specifically, the policy on increasing the
representation of non-investing parties: the employees as well
stakeholders without contractual relations with the firm. The trade
union, which organizes a majority of the employees and, thus, has a
strong bargaining position, also puts a pressure on the owners to
increase the social responsbility of the firm.
The most important externalities imposed when shareholder value is
maximized are many lay-offs among the employees and polluted air and
water from the factories.
Describe bow alternative solutions could be assigned to improve the
protection of the non-investing parties in this case and give your
recommendation to the owner. In doing that, discuss also the
advantages and disadvantages of the different solutions. Finally, try
to show the limitation of private arrangements, where public
regulations is required.