Question

We learned that the ultimate goal of financial management is to maximize shareholders' wealth. Could this goal conflict with other goals, such as customer and employee safety, the environment and the general good of society? Should the firms take into consideration the well-being of the society in their effort to maximize shareholders' wealth? Try to think of some specific scenarios to illustrate your answer.

Answer 1

The main focus of the company is always to maximize the shareholders wealth as they are providing the capital to the company, but the goal can be conflicting with the other goals related to other stakeholders of the company because the goal is primarily focusing on maximization of the shareholders wealth, so they will try to undertake various projects which are only offering higher value addition for the shareholders but they are not undertaking social elements into account and other stakeholders, so they are always giving upon other factors like employee safety or consumer satisfaction and hence they are not working for the general welfare of the society which is conflicting with the stockholders interest protection because the management is only focusing upon the shareholders wealth maximization.

The company should be always undertaking the well-being of society in the effort to maximize the shareholders wealth because the company should always try to take proper care of all the stakeholders of the company and work in the best interest of them in order to generate value for the company in the long run and create a sustainable value so, the company should be trying to embed all the well-being of the society rather than just to focus upon the maximization of the shareholders wealth as companies are mostly engaging into projects which are unethical, but which is also offering them with very high profits, so these are not to be undertaken rather than they should try to focus upon the enhancement of the social values and fulfillment of the corporate social responsibility.

Hence, the financial management should always try to incorporate the stakeholders interest with the shareholders interest.