Stakeholder focused goals vs Shareholder focused goals

SHAREHOLDER WEALTH MAXIMIZATION 1 SHAREHOLDER WEALTH MAXIMIZATION 4 Shareholder Wealth Maximization and Social Change Initiatives The financial objective of a corporation or business is to maximize the wealth to the shareholders. The shareholder advances capital to the company’s managers, and it is the duty of the managers to utilize the funds as the stakeholders stipulate. The managers have a duty to both the shareholders and the stakeholders (Ross, Westerfield, Jaffe & Jordan, 2016).

Stakeholders are potential beneficiaries, and risk bearers of the business and the managers have the responsibility of ensuring no ethical rights of the stakeholders are violated and that the interests of the stakeholders are balances when making decisions (Hiebl, 2015). The duty of the corporation to the stakeholders brings the connection between its main objective and corporate social change initiatives. Creation of value for the company comes hand in hand with the maximization of the profit as the prime objective of the company (Hiebl, 2015).

An increase in the profit margin of the company helps in increasing the value of assets for the business owners. Different factors assist in increasing the value of assets in a company and in the process help in maximizing the shareholder wealth (Ross, Westerfield, Jaffe & Jordan, 2016). These factors include the maximization of the earnings after tax, the earning per share, and the market price per share (Carraher & Van Auken, 2013).

Therefore, a company is always looking for ways to maximize the sales of their products, which maximizes the profit of the company. However, the society also has expectations for the company to operate not only based on profit maximization but also on the social responsibility. Through the implementation of social responsibility, the company can enhance the sense of goodwill that entrepreneurs have and the reputation of the company amongst its partners.

Shareholders are required to support social change initiatives by the company as a way of promoting the production and the business activities of the enterprise (Ross, Westerfield, Jaffe & Jordan, 2016). Social responsibility is achieved through such elements as protecting the consumer and directing the efforts of the company to environmental issues such as conservation initiatives (Carraher & Van Auken, 2013). Social acting and responsibility by an organization attract more customers and potential investors. There have been instances where consumers boycott some goods from some companies because of deficiencies in social responsibility.

The shareholder theory holds that the social responsibility of a business is to use the resources and engage in activities meant to increase the profits of the company (Hiebl, 2015). However, the company has to engage in open and free competition (Ross, Westerfield, Jaffe & Jordan, 2016). Conversely, the stakeholder theory asserts that managers have a duty to shareholders, the employees, suppliers, the local community, and the customers (Carraher & Van Auken, 2013).

One of the main problems associated with the stakeholder theory is that it demands the consideration of the stakeholder’s interests even in those situations when they reduce the profitability of the company. The shareholder theory is assumed to prohibit the giving of corporate funds to such things such as charitable projects or other social initiatives in the organization such as improvement of employee’s morale (Ross, Westerfield, Jaffe & Jordan, 2016).

The argument that shareholder theory supports social initiatives taken by the company and its management discredits this assumption as it shows the connection between shareholder wealth maximization and the social change initiatives done by the organization (Carraher & Van Auken, 2013). Besides, the shareholder theory urges manager to do what it takes to earn some profit for the company although the mandate is only given for legal and non-deceptive means.

Shareholders are considered the owners of the company but the managers are not only supposed to focus on the shareholder value, but they are also interested in profit, sales, as well as, staff. The managers should combine enterprise value and at the same time satisfy the other objectives of the company. The maximization of the company value leads to the maximization of the other objectives but in an indirect capacity (Hiebl, 2015).

The adoption of the stakeholder concept in the organization arises from the recognition that the business environment affects the success of an enterprise. The business interacts with customers, the government agencies, the suppliers, families of the employees, and other social groups on a regular basis. The decisions made by the company may in some affect one or more of the interest groups (Carraher & Van Auken, 2013). Therefore, the manager should consider the responsibility they have towards the interests of the other groups.

Countries such as Germany have the emphasis placed towards the employees working in the.