maximize shareholder wealth

Chapter 1 reiterates the common idea that the goal of the firm is to maximize shareholder wealth. Discuss why you believe this to be correct or incorrect. Also, discuss the concept of ‘stakeholders’. Who are they and how do they impact the debate?

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Requirements: 1) No more than 2 fully developed paragraphs per post. 2) Should be in Your Own Words. 3) Do not use quotations from others. 4) Use APA citation when referencing sources.

ANSWER

Maximize Shareholder Wealth

The idea that managers should focus on maximizing shareholder wealth sounds flawed and incorrect. This principle governs managerial behavior in the business world today. While this is a common phenomenon, it is incorrect to say that managers should put all their focus on maximizing shareholder wealth. Most companies focus on maximizing shareholder value rather than profit because they believe maximizing shareholder value gives the company a better position in the market. It also increases the ability of the company to grow and survive in the competitive market (Lazonick, 2017). A company that focuses on profit maximization only is likely to stagnate, and its market value will not grow.

This idea is flawed because increasing shareholder value should be an outcome and not a strategy for any organization. If a business is well managed, it should allow the employees to explore their talents. By allowing the employees to explore their talents and apply their expertise in their fields, the company is likely going to produce quality services, and quality services will bring in profits, and the profits will increase the shareholder value. Shareholder value should be the outcome of a well-managed organization that produces quality services (Lazonick, 2017). It is the outcome of a well-run business, and thus managers should not focus on increasing shareholder value, rather, they should focus on making the business better, which will help make the company better hence increasing shareholder value. Stakeholders in a company are the investors, the employees, customers, suppliers, communities, and governments. They are among the factors that impact the success of an organization, and thus managers should run a business while putting the stakeholders in mind and ensuring that all their needs are met, as there is no shareholder wealth without the stakeholders.

References

Lazonick, W. (2017). The new normal is “maximizing shareholder value”: Predatory value extraction, slowing productivity, and the vanishing American middle class. International Journal of Political Economy, 46(4), 217-226.