Question

At the core of financialization is the idea that organizations should be managed as though maximizing the shareholders’ financial wealth is the only possible or legitimate goal (Cardao-Pito, 2017) At least, that has been the mantra for most businesses for a long time. It is the duty of company management to maximize shareholder wealth. In 1954, Peter Drucker had argued that “There is only one valid purpose of a corporation, to create a customer.” If the customer’s needs are met, then the shareholder’s needs will in due course also be met. When customers are delighted, the firm makes more money and can afford to pay workers more and meet the needs of other stakeholders. Moreover, customer capitalism is intrinsically moral: human beings are creating value for other human beings. (Denning, 2019)

There are advantages of wealth maximization include increased return, a consistent strategic focus, and making decisions that are based on data. Disadvantages can include the potential for unethical business practices, stock price manipulation, and refraining from investing in employees to save in labor costs. “Companies that deliver value to shareholders while destroying value for other stakeholders have a fundamentally flawed business model. Those that create value for stakeholders are cultivating sources of extra value that can fuel competitive advantage for years to come. Sustainable value occurs only when a company creates value that is positive for its shareholders and its stakeholders.” (Laszlo et al, 2005) Companies that have a positive impact on the stakeholders put themselves in position to create future value which in turn helps maximize wealth for shareholders as well as employees in the company.

Required :

compare and contrast the above view on shareholder maximization with your own. Support your position by offering a counterpoint or resources from which your peers can derive additional knowledge.

Answer 1

For every corporations’ shareholders do provide capital and capital is one of the most important things for businesses so that they can remain in the industry for long term hence shareholder wealth maximization becomes one of the most important aspect of any business. The important thing to note here is that the company should focus on creating values for all its stakeholders be it shareholders, employees, suppliers and Government. The idea behind creating values for all its stakeholders is that in the short-term the company might be able to create values for shareholders at the expense of employees or other stakeholders but then in the long-term it would not be able to sustain in the business for the long term because it needs the support of all its stakeholders to sustainably grow, it needs its employees to perform, it needs raw material from supplier and it needs support from local government in terms of its rules and regulation. If company is exploiting its employees then they would leave the company and go somewhere else, suppliers might not provide the raw material, government might impose fines. It is very important that the company is taking care of all its stakeholder that it is not exploiting its one stakeholder so that the other can benefit because then it will not be able to sustain in the business for the long term. Long term sustainable growth should be the focus of every company while creating values for all the stakeholder.