Question

1. Discuss the similarities and differences between shareholder wealth maximization and stakeholder wealth maximization.

Answer 1

There are very few similarities between the shareholder wealth maximization and stakeholder wealth maximization. The one similarity is that owners of the business get their wealth maximized in both the theories. The another similarities is the profitability of the firm that is optimized in both the concepts.

Though there are many differences between shareholder wealth maximization and stakeholder wealth maximization. The first difference is the focus that is shareholders in case of shareholder wealth maximization concept, but there are different participants as employees, vendors, government authorities, society and share holders among the others. Further, stakeholder approach is a balanced approach that focuses upon the sustainability, but shareholder wealth maximization approach only gives attention to create wealth for the owners and it can come at the cost of environment or employees welfare. Besides, shareholder wealth maximization is a narrow approach but, stakeholder wealth maximization approach is inclusive and broad that looks after the best interests of everyone in the community.