Corporate Governance Shareholder Wealth Maximization

Corporate Governance Shareholder Wealth Maximization approach and Stakeholder Capitalism are both models applied to maximize the wealth of shareholders. Managing the wealth of shareholders is the prime goal of management within the American business world while stakeholder capitalism is common across European and Japanese markets. The SWM approach argues that the stock market is universally efficient such that the management's performance is reflected from the rapid movement of stock prices. The SCM approach is not founded on the presumption that the equity markets carry out their duties efficiently.

In this model, the efficiency of the stock market does not matter. This is because the financial goals of a firm are not entirely share-focused as other stakeholders (Tricker, 2012) control them. This article offers all the relevant details about my topic by focusing on Shareholder Wealth Maximization approach and Stakeholder Capitalism Models. Looking at the SCM, this article supports my topic by citing that long-term shareholders dominate interests controlling the corporate strategy to the investor's transient portfolio.

This article supports my idea that the SCM approach determines other groups linked to a corporation and that the stakeholders have an upper hand in the legal administration of the corporation (Calder, 2008). The principal goal of the SWM is to enhance the wealth of shareholders through the payment dividends and increment of stock prices. Unlike SWM, SCM seeks to capitalize the return of shareholders through the capital and dividend gains. While SCM describes risk as qualitative sense, SWM describes risk as universal.

In the SCM, the article argues that businesses must focus on all supporters that have the potential of affecting the firm. Board members and managers of corporations play crucial roles in decision making that suit numerous inconsistent and competing constituent interests. Nevertheless, stakeholders have different interests and demands. While customers are pursuing lower prices, expensive services and quality products, employees want high level working conditions, high wages, and fringe benefits like pensions and medical benefits (Moffett, Stonehill & Eiteman, 2012).

On the other hand, shareholders or capital suppliers want high returns and low risks. Communities are looking for social expenditures by the business to benefit the community (hospitals, stable employment, donations, and investments). Managers face a challenge in making such crucial decisions. Therefore, corporations must be clear on how to make tradeoffs between these often inconsistent and conflicting interests from different stakeholders. In the Shareholder Wealth Maximization model, three types of maximization exist in a company. They include total stakeholder maximization, shareholder maximization and stakeholder-owner maximization.

Shareholder maximization is based on a single stakeholder maximization whereby the sole business owner is taken into account during maximization. The stakeholder owner maximization focuses on desired interests and resources important for shareholders commitment. It is crucial for the overall success of the business venture (Tricker, 2012). Of all the three-wealth maximization of companies, shareholder wealth maximization is more significant than the other two. While most businesses presume total stakeholder maximization to be the most significant role, it is never easy to achieve this maximization.

In my topic, businesses are being encouraged to consider stakeholders' interest during the process of decision-making. During this process, conflicts of interests emerge due to stakeholder and shareholder interest rivalry (Tricker, 2012).