Question

Discuss the role of employee-owned businesses and shareholder wealth maximization. What are some pros and cons?

Answer 1

Answer: Employee-owned businesses- There is business in which employees have major ownership stake.

Example: Employee stock ownership plan in which company's workforce have interest in the company. Company provides shares to the employees and employees have to retain those shares until a specific time or retirement.

Shareholder wealth maximization- It is a modern approach in which, shareholders wealth is maximized by giving them dividend and capital appreciation. Shareholders are the owners of the company, they invest their hard earned money into the company. Value of their investment is increased so that they may become satisfied shareholders. Sometimes company repurchases its own shares to give the boost to share price that increases shareholders' wealth.

Pros- Shareholders become happy and satisfied. More investors get motivated to invest into the company. It is a win-win situation for shareholders and company as well.

Cons- Managers are ignored when shareholders are benefited. This approach is criticized because still some organization work on profit maximization basis.