Question

The fundamental goal of corporations is to maximize shareholder value. What do you think of the statement "Firms should do everything to maximize shareholder value"? 

Answer 1

The fundamental goal of corporations is to maximize shareholder value. The statement has the right intent and is the main objective for any firm and to create value for shareholders such that it not only create value in short term but also in long term. Then comes the second question whether firms should do everything to maximize the shareholder value. Though, firms are obligated to create wealth for their shareholders but at the same time it is also responsible for the society in which it exist. The point is irm should grow with responsible growth focus in mind keeping in mind the socio-logical, environmental and humanitarian factors while making any decision. While taking any business decision firm should consider how each stakeholder involved or not involved in the decision is getting impacted from it. A firm can't take decision which can adversely affect one stakeholder on the expense of other. It has to take the balance of the satisfying every stakeholder interest. These days a lot of value can be eroded by one bad decision and can bring significant disrepute to the firm and loss in value to stakeholders. For eg: Recently, Facebook shares dropped significantly when the news of dataleak from Facebook website broke. While taking customer data and using them for business purpose but not providing adequate security or protection measure in place Facebook was on the brink of loosing people trust which divert customer from its platform. Similarly, we have seen many case of Oil spills where company faces billions of dollar in fines from regulators for not taking adequate precuatinary measures, to top it all the reckless trading of CDS by big banks in 2007-08 caused financial crisis and brought many big banks on the verge of bankruptcy. So, maximizing shareholder value is the main objective for a firm but keeping interest of all stakeholders in mind with responsible growth strategy should be the aim for any firm.