Shareholders Wealth Maximization
The principle of shareholders wealth maximization is normative in that it is a designed standard ethics of conducts for all the officers, directors of different companies and perhaps the managers in most business organizations (Stout, 2008). This medium is the controlling factor and also a convenient modeling assumption in the economic and finance explanations in the articles written for managers. The legal mandate of every manager is to protect and safeguard the corporate assets by prudent behavior, not necessarily to pocket the benefits. In part, all of this gives the answer to the question and support that managers should consider the shareholder’s profits in the course of their goals.
Perhaps, the idea of the managers taking the shareholders interest as the aims of the institution is very paramount to the fact that it promotes the social welfare of the market economy. This will help motivate the public to come into the business and give their funds to support the organizations. Despite, being a pivotal role for the efficient operation of a firm. Some have also strongly argued that shareholders do not have complete ownership in any public corporation and probably they are not the sole claimants, thus putting them ahead will discourage others who are not shareholders from close participation to the organizations (Roe, 2001).
The consideration of putting this idea in place (Roe, 2001), has brought a lot of cold conflicts among the participants in a firm, the most probable complaint is about who is the sole owner of the business. The shareholder’s primacy in the financial matters of an organization is the basis of any operation, but this may not apply to everyone and hence a conflict. Instead of hearing the complaints and the many alarming sounds from some people, the manager should consider doing the right thing since every firm exist to make the profit and not loss.
Roe, M. J. (2001). The shareholder wealth maximization norm and industrial organization. University of Pennsylvania Law Review, 149(6), 2063-2081.
Stout, L. A. (2008). Why we should stop teaching Dodge v. Ford. Va. L. & Bus. Rev., 3, 163.