You are the president of a very successful Internet company that has had a remarkably profitable year. You have determined that the company has more than $10 million in cash generated by operating activities not needed in the business. You are thinking about paying it out to stockholders as a special dividend. You discuss the idea with your vice president, who reacts angrily to your suggestion:
“Our stock price has gone up by 200 percent in the last year alone. What more do we have to do for the owners? The people who really earned that money are the employees who have been working 12 hours a day, six or seven days a week, to make the company successful. Most of them didn’t even take vacations last year. I say we have to pay out bonuses and nothing extra for the stockholders.”
As president, you know that you are hired by the board of directors, which is elected by the stockholders. What is your responsibility to both groups? To which group would you give the $10 million?