Question

Hello. I have a statement that I´m having difficulties to answer. Do you have any input on this?

"The only objective companies need to follow to achieve stakeholder goals is shareholder wealth maximisation."

Thank you

Answer 1

To understand the given statement, we should first understand the meaning of shareholder and stakeholder.

A shareholder is that entity who buys shares of the company and invests his money in the company. On such investment, the shareholder expects suitable returns in the form of dividend and appreciation in the value of shares.

A stakeholder is that entity who is affected by the performance of the company. A stakeholder may be manager, director, creditor, supplier, customer etc. Each stakeholder has his own objectives. The creditors might be expected timely paymenyt of interests and principal. The customers might be expecting the good quality products at less prices.

Shareholder wealth maximization means higher dividends and increase in the market value of the share which can be possible when the company performs well in long run. The company must be able to satisfy its stakeholders i.e. creditors, suppliers, customers etc. so as to acheieve good performance in log run.

So, it can be said that if the company is able to maximize the shareholders wealth, it would have achieved the stakeholder goals automatically. Without achieveing stakeholder goals, maximize the shareholders wealth will not be achieved.