Question

Think about the corporate goal of shareholder wealth maximization. Evaluate it as the overarching goal for business. Do you think on balance it is good or bad for the country, the economy and society? Cite examples to support your opinion.

Answer 1

In my opinion the wealth maximization objective is good for the country as well as the society. When compared to the profit maximization goal the wealth maximization goal is more logical and desirable. This is because the focus is not just on making profits but on increasing the shareholder wealth.

This encourages the management to make profits by fair means and increase the Goodwill of the organisation which will finally increase the shareholder wealth. This implies increasing the share price which is calculated as the present value of future cash flows associated with the stock. The management focus on increasing share price increases the cash flows which boosts the economy. Focus on wealth maximization increases the general stock prices in the economy and the country which is a good sign since it indicates growth in the economy. It also brings the focus on stakeholders interest. For instance if the management is focusing on increasing share price it will not create pollution in the environment since that will bring negative publicity to the company and finally affect its share prices. Management will also avoid unscrupulous practices such as being unfair to employees or cheating customers.