Question

It is often argued that the goal of financial management is to maximize the value of the firm for its owners.

Prompt: Do you agree that this is the proper goal? Why or why not?

Read Goizueta (1997) (Links to an external site.). Here, Goizueta defends Coca-Cola’s stated mission: “to create value over time for the owners of our business.”

Prompt: Do you find his arguments persuasive? Why or why not?

minimum 300 words

Answer 1

It is true saying that the goal of a financial management should be to maximize the value but value creation should not be only for owners but also for all its stakeholders. Stakeholders includes employees, shareholders, management, customers, suppliers, society associated.

This can be justified by the following facts:

1) Since employees are the ones who works and create the profits , if they will not be happy than it will impact their work and eventually the profitability of the company will decrease

2) Shareholders sentiments are derived from the company's vision and mission for its shareholders. If the company will not focus on value creation of its shareholders than the they will refrain for investing in such company.

3) Management involves every division of the company. All have to work together and create value for the stakeholders, if management is impacted it will eventually impact the environment in the company and thereby its stakeholders

4) Customers are the vital player in this scenario, if company losses its image in eyes of customer then it will became very difficult to gain that trust back. There should be value creation for the customer through its product and services

5) Suppliers are important for the inventory and intermediary. If the suppliers are not happy than the whole cycle will be disrupted which will impact the production.

6) Society as a whole will uplift the company by word of mouth and news. Hence the company should concentrate on creating value for all its stakeholders.

We can also see this from visions of different organisations which talk about value creation for stakeholders,

Examples: ITC- Sustain ITC's position as one of India's most valuable corporations through world class performance, creating growing value for the Indian economy and the Company's stakeholders.

Tata Motors-To be a world class corporate constantly furthering the interest of all its stakeholders.

According to Goizueta statement it is justified to have value creation for its owners instead of focusing on other factors like creating economic value for environment or creating value for share owners but from a company's perspective if they want to create value in long term they should focus on other stakeholders also instead owners only. And by doing so they can eventually create value for their owners. According to him, if a business focuses on creating values for share holders, many of them leave the firm after many profit and only few of them stays loyal to the firm. By this, companies miss on their ultimate target of value creation. This target of Goizueta as CEO and Chairman of Coca Cola has helped the company to expand their business drastically and create value for its share owners. But in my point of view, looking at creating value for other stakeholders is also necessary to make them interested in the business. Like, many a company nowadays allocate ESOPs to their employees. This creates an interest of employee's in the companies value and so employee work dedicated to create value fro not only business owners, but also themselves and other stakeholders. So Maximizing value for stakeholders should be the goal of a business.