In essay format, discuss the role of employee-owned businesses and shareholder wealth maximization. What are some...

In essay format, discuss the role of employee-owned businesses and shareholder wealth maximization. What are some pros and cons?

Expert Solution

Employee-owned businesses:

Employee owned businesses means a business wherein the employees are owners and they possess rights of voting as well. It is also known as Employee stock ownership plan- ESOP. Under ESOP employees are given shares in the company as part of compensation for working in the company. There are many companies which are 100% employee owned. Also, there are many companies which are more than 50% employee owned.

Pros- 1. Owners of the company are involved in day to day operation and in all top to bottom processes. 2. Due to ownership, efficiency of employees get improved. 3. Employees no longer see company as an employer, rather they consider is their own business and put efforts accordingly.

Cons-1. If a company is 100% employee owned, problems in delegation of duties may occur. 2. Aggressive competition in company may lead may affect business in adverse manner.

Shareholder wealth maximization:

In most companies, owners- shareholders of the company and management of the company are different. Hence, as per shareholder wealth maximization, the management of the company shall look into increase in shareholders' wealth by way of periodic payment of dividend and effective business operations. Also, increase in value of share in long term lead to shareholder wealth maximization.

Pros- 1. Shareholder have faith in the company and they want good return on money they have invested. Hence, they-actual owners of the company gets satisfied returns. 2. It attracts public to invest into the business.

Cons-1. High returns may lead to lower reserves. Therefore, business expansion and increase in business volume may get delayed. 2. Inconsistent returns to shareholders may affect their investment opinion in the company in adverse manner.

jeff jeffy answered 6 months ago

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