Shareholder Value Perspective

Emphasizing profitability over responsibility. Explanation of Shareholder Value Perspective.

Introduction

Over the last 200 years, the influence of business corporations on our society has grown quickly and tremendously. No wonder that the corporate purpose they should serve is discussed by many people with different backgrounds, including:

Academics in the fields of economics, law, political science and sociology,
Business ethics and philosophic scientists,
Political parties, labor unions, various communities, environmentalists, and
Media and the general public.

In countries with a market economy it is generally agreed that companies should pursue economic profitability. However many people would likewise agree that organizations also have certain social responsibilities. Profitability and responsibility can and should be combined in an ideal world, however it is clear that they are at least partially contradictory.

On the one hand, businesses must make profits for surviving. Specifically, corporations must provide a higher return on their equity capital than would be realized by the shareholders if they deposited their money on a risk-free bank account. The profits that are made create trust from investors and are usually reflected in higher share-prices, which make it easier for the company to realize its goals. The profits are not only a result, but also a source of corporate competitive health and wealth.

On the other hand, companies are networks of parties and people working together towards a shared goal and not merely 'economic machines'. Employees nowadays represent a major part of the value of any company (intellectual capital). To motivate people to work hard for the interests of the company, a level of trust must be built with them. Likewise it is important for trust to develop between the organization and its external environment (customers, suppliers, government, and interest groups). Such trust can only grow from the perceived secure feeling, that the interests of all individuals and stakeholders are taken into account.

What is The Shareholder Value Perspective. Description

The Shareholder Value Perspective emphasizes profitability over responsibility and sees organizations primarily as instruments of its owners. Shareholder Value proponents believe that the success of an organization can be measured by things as share price, dividends and economic profit. They regard Stakeholder Management rather as a means than as an end/purpose in itself. They believe that social responsibility is not a matter for organizations, and think that society is best served by organizations pursuing self-interest and economic efficiency.

The Shareholder Value Perspective and Stakeholders

The Shareholder Value philosophy is not blind for the demands placed on corporations by other stakeholders than the shareholders. However, recognizing that it is expedient (instrumental) to pay attention to stakeholders does not mean that it is the corporation's purpose to serve them. The purpose of a company is first and foremost to maximize shareholder value, within what is legally permissible. Advocates of the Shareholder Value Perspective are convinced that society is best served by economic rationale. Responsibility for employment, local communities, the environment, consumer welfare, and social developments are not organizational matters, but should be dealt with by individuals and governments. By pursuing enlightened self-interest and by maintaining market based relations between the corporation and all stakeholders, the pursuing of maximal value for the shareholders will also result in maximizing societal wealth.

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Recent User Comments

    			 
  			   Judith Cashmore - England
  	       
  		     The Shareholder Value Perspect
  	  		 "Whilst I can understand the modern economics in this perspective, I am driven to make comparisons with a number of companies in the UK during 19th and 20th centuries.   These companies built housing estates for their workers, play areas for their children, established social club facilities for them and in some cases built schools and even had nursing homes where sick workers could go for rest and recuperation.   Companies such as English Electric - then GEC, TI - Tube Investments, BRC - British Reinforced "
  			   
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