Short-Term Profit Maximization

· What is short-term profit maximization, and why does it lead to ethical problems?

Businesspersons often commit ethical violations because they are too focused on one issue or one needed result, such as increasing profits or outperforming the competition. Some studies indicate that top-performing companies may actually be more likely to behave unethically than less successful companies, because employees feel they are expected to continue performing at a high level. Thus, abnormally high profits and stock prices may lead to unethical behavior.

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In attempting to maximize profits, corporate executives and employees have to distinguish between short-run and long-run profit maximization. In the short run, a company may increase its profits by continuing to sell a product even though it knows that the product is defective. In the long run, though, because of lawsuits, large settlements, and bad publicity, such unethical conduct will cause profits to suffer. An overemphasis on short-run profit maximization is perhaps the most common reason that ethical problems occur in business.

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