The only legitimate objective of any firm is Maximization of Shareholder Wealth

The shareholder wealth maximization is a model that is accepted globally. There is no doubt that it is a superior and effective when compared with other models that focus on profit maximization. Stakeholders are considered important by all business organizations. However, there are other parties that are also important. They include employees, creditors, customers, and the community. The objective of wealth maximization does not include the other important parties in an organization. It mainly focuses on the shareholders. This makes the social welfare of other stakeholders to emerge an essential corporate objective. Therefore, this paper majorly critique the shareholder wealth maximization model as corporate objective.

Under this perspective it is best for managers to provide a return of capital to shareholders while also meeting the demands of society in order to be socially responsibly and continue to exist within a society.

To put it simply, in financial terms, to maximize shareholders wealth means to maximize purchasing power. Throughout the years, we have learned that markets are most efficient when the company is able to maximize at the current share price. Every company’s main goal should be to strive to maximize its value to every single one of their shareholders. Common stock represents the value of the market price, and it also gives the shareholder an idea of the different investment, financing, and dividend decisions made by that particular firm.

(3) Managerial reward maximization, (4) behavioral goals, and (5) social responsibility. However, the primary goal of the business is to maximize the wealth of its stockholders, which translates into maximizing the price of the firm‘s common stock. The traditional goal frequently stressed by economists--profit maximization--is not

Dunlap focused largely and explicitly on shareholder primacy and practically lacking consideration for all other stakeholders of the firm, which reflected in his “take-no-prisoners” (case p.1) management style during his tenure as Sunbeam’s CEO. Dunlap’s goals were limited to just maximizing stockholders’ wealth by adopting fast turnaround tactics and all other salient characteristics of the very existence of corporation such as product innovation, product/service quality, employee and customer satisfaction and corporate ethics were completely neglected. Mr. Dunlap’s adaptation of shareholder-theory was based on historic view of

Maximizing shareholder value can prevent the survival of a corporation. “Wise leader attend to legitimate needs of employees, investors, suppliers, and communities but avoid tying to satisfy any of them to the most extent possible” (Raynor, 2009). Raynor sums up his argument by explaining that shareholder theory has to measure the share price of the shareholder which is not measurable. I agree with his argument. Do to the market fluctuation it impossible to decide when the shareholder has reach it most value. A shareholder can make a large amount of money one year. The next two years never come close to what was considered a large amount initially. The decision to dissolve a potentially good corporation would become a frequent decision in the market. I understand that a company is created to make profits. But the long term of the company would be put a risk.

Unlike shareholders who are solely interested in return dividends and share price growth, stakeholders have wide variety of interests in how companies operate. Freeman (1984) stated that stakeholders are, “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. The main objective for firms is profit maximization and for this reason I agree to a

In general, the corporations work towards meeting the end goal of adding value to its shareholders and/or stakeholders, but the way this ‘value is added and who is given priority while adding this value’ depends on the ‘perspectives’ (session1 slides) corporations choose to fulfill the objective of the given corporation. Corporation structures involve executive management, board of directors and its internal and external stakeholders. The executive management are at the helm of running the company, executing strategy and managing company operations, while corporate boards are supposed to keep an ‘careful watch’ and guide executive management activity. Boards are primarily performing ‘advisory and monitoring’ functions i) by acting independently in the interest of the corporation ii) guide management by taking ‘un-biased’ stand and at times taking opposing viewpoint than the company’s management iii) select, evaluate, and compensate Chief Executive Officer(CEO) and executive management oversee succession planning(session1)iv) review and monitor company performance while minimizing company costs v) risk identification, risk mitigation and risk avoidance guidance, governance and vi) guidance to CEO and senior management around strategic and operational direction of the organization.

The modern corporation is a marvel to behold and is one of the most fascinating inventions by man. What makes the corporation so special is that it allows for the risk of a business venture to be spread and cooperatively held. In contrast, prior to the formation of corporations, the risks of business ventures were shared among a few individuals. However, what corporations have achieved that partnerships could not is immense size due to increases of capital. As mentioned previously, the corporation allows for distribution of risks among its stockholders. Furthermore, management and ownership are separated under the corporate structure. The notion of a separation between management and ownership allows for the corporation to put into the

An entity’s ability to generate profit and return on investment is one of the prime indicators of its financial health (Birt et al., 2010). Profitability ratios inform users as to the profit returns associated with their equity investment. In the case of David Jones, the Return on Equity (ROE) is higher in 2011 than 2012 as the company is experiencing a higher profitability on sales, this indicates that the owners and the shareholders are able to gain returns faster in 2011. Referring to appendix 1, in 2011 the Return on Equity (ROE) of the company was reported at 22% which mean that from every $1 invested there is a

It was concluded that: “shareholders are the only stakeholders of a corporation who, in seeking to maximise their own claim, simultaneously maximise everyone’s claim.". It was said that: to generate maximum value for shareholders-is in principle the best means also of securing overall prosperity and welfare." It is not difficult to understand that how shareholder primacy works for increasing social wealth. For example, if shareholders’ interests increase, the better payment and safer workplace will be provided to employees a good environment protection will be concerned when making business decision; and the customers will be given a lower costs and better quality products. Taking all the matters as a whole, the social wealth will be enhanced

Academics and industry experts have been debating over the absolute objective of organizations for decades. Economists argue that the pure aim of any organization should be to maximize shareholders value (Jensen, 2002). The conclusion that derive from such statement are quite straightforward. Nevertheless, the academic discussion that rise from such evidence is more complex. Shareholder value is a concept that could be easily stretched to include a wider focus group. Logically speaking, companies’ performance are affected by the business environment in which they operate. Therefore, shareholder value is indirectly influenced by the entire group of

In clarifying the proper relation between value maximization and stakeholder theory, the author introduces a somewhat new corporate objective called “enlightened value

The dependent variable; Shareholders’ value as used in this study was measured similarly to the one used by Olayiwola, (2016) which have been widely embraced in the literature as shareholders’ value and is measured

o Our Shareholder Mission is to not only maximize investment returns over the long-term, but also to manage risk in order to give surety and confidence those investments can achieve our shareholder's goals.