Part 1Based on your professional or academic
experience with corporate finance, discuss what shareholder maximization means
to you. What are the advantages and disadvantages of shareholder maximization
from the perspective of the CFO of an organization?Part 2reply to peers
Unformatted Attachment Preview
Shareholder maximization is a fiduciary responsibility in US corporations, and the
management can be sued by shareholders if they feel that the company has failed to perform
(Ehrhardt & Brigham, 2017). Shareholder maximization means putting the best interest of
the shareholders as the top priority, even if that means being less socially responsible. While
that may have been the way business has been done historically, our countries values have
definitely changed, and many are now very aware of the social impact that companies
have. Being socially irresponsible can have a huge effect on the bottom line. Society has
embraced this change, but many in the business world have not. As one study showed, when
given a scenario of management decisions, evaluators were much more ready to forego
Corporate Social Responsibility (CSR) than financial measures from evaluations (Bento,
Mertins, White, 2016). Many organizations are now implementing CSR into their balanced
scorecard, recognizing that companies have a responsibility that extends beyond shareholder
maximization. The study goes on to reveal that the new balanced scorecard looks at the
company as a whole from 4 perspectives that include: how do we look to shareholders, how
does the customer see us, what must we excel at, and can we continue to improve and create
value. By including these 4 views the company has access to the following data: company
financial gains, value for customers, delivery of customer/shareholder satisfaction, and
innovation and learning. These elements provide a picture of the company that includes not
only a financial overview, but the companys perception by others.
When a business focusses solely on shareholder maximization, the societal impact
becomes irrelevant. In todays world, many will judge a company based on their concern for
the environment, as well as other factors. In this age, it becomes increasingly important for
corporations to consider more than just the profitability to the shareholders if they want to
remain in business.
Bento, R. F., Mertins, L., & White, L. F. (2016). Ideology and the Balanced Scorecard: An
Empirical Exploration of the Tension Between Shareholder Value Maximization and
Corporate Social Responsibility. Journal of Business Ethics,142(4), 769-789.
doi:10.1007/s10551-016-3053-6. Retrieved April 29, 2018, from
Ehrhardt, M. C., & Brigham, E. F. (2017, p11). Corporate finance: A focused approach.
Boston, MA: Cengage Learning. Retrieved April 29, 2018, from
What shareholder maximization means to me is that the company cares for only one thing
profit. Working for a Credit Union that does not put profit before service is, in my opinion,
more important and is a key ingredient to a successful company. There are many
disadvantages to focusing on shareholder maximization such as bad business practices,
forgetting about the customer/member and employees.
One recent example of bad business practices was the issue with Wells Fargo Bank
(WFB). WFB was securitized for putting a lot of pressure on employees to meet daily
goals, in that, it was somewhat implied that that is what caused employees to
fraudulently open accounts without the knowledge of customers but rather the gain of
Corporation that concentrate on maximizing shareholder value might lose focus on
what customers what, or might do things that are not optimal for consumers.
Employment retention or satisfaction is negatively affected. Companies that seek
maximization profit as a priority tend to focus on hiring cheap labor, thus possibly
outsourcing to foreign workers.
And on the flip side, there are advantages as well such as increased returns or strategic
The most overt advantage of a wealth maximization goals is that you can make
money for all owners of the business. (Kokemuller,2018).
Whatever your goal, a clear focus on an overall strategic objective helps you create
consistency in business decisions. (Kokemuller,2018). All decisions made will relate
to this objective consistently. For example: The provider or vendor that provides you
the highest return and lowest investment cost will always be your choice.
Hamel, G. (2018). Negatives of Maximizing Shareholder Value. Retrieved on April 28, 2018,
Kokemuller, N. (2018). The Advantages of the Maximization of Shareholder Wealth.
Retrieved on April 28, 2018, from https://yourbusiness.azcentral.com
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