Documents uncovered after the Exxon Valdez oil spill in Alaska revealed that Exxon could have used

Question

double-hulled oil tankers that would have prevented the spill, but the cost of refitting their fleet of
single-hulled tankers was considered too high

. Exxon determined that the cost of cleaning up an oil spill would
be less than the cost of refitting the ships, thus increasing shareholder value. Several years after the oil spill,
however, Exxon was fined billions of dollars for the spill. How do the costs of the cleanup and the fines pertain
to a discussion of maximizing shareholder value and ethical responsibility?

Answer 1

Managers are supposed to maximize shareholder value. Exxon's analysis of the costs of an oil spill versus the cost of
improving their tankers seems to have been a reasonable one at the time it was undertaken. The social costs of killing
birds and fish were expected to be low. The outrage at Exxon's conduct and the subsequent large fines will change the
estimation of future costs for similar situations. Managers need to consider the impact of their decisions on their
companies' cash flows. Socially undesirable activities may lead to boycotts, protests, lower sales, fines, etc. These costs
must be included in their analyses. Society sets limits within which corporations must operate or the corporations, and
their shareholders, will suffer. Therefore, acting in ethical and socially responsible ways is congruent with the goal of
shareholder wealth maximization.