Shareholder Value Perspective

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Summary

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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Types of Shareholders / Investors
In what way(s) can we group shareholders? What are the differences between these various types of investors? Thanks for (...)
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🔥 NEW How does Trust Lead to Profitability?
Do you know any specific figures that support the notion that higher trust in an organization will result in higher prof (...)
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Shareholder Value is the End
The Shareholder value principle is nothing else than the beginning of the end for a company. I've been facing years ago (...)
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The Purpose of Business: Stockholder versus Stakeholder Theories

Stakeholder Analysis; Stakeholder Commitment
This presentation elaborates on the objectives and purposes of businesses according to different views: those of stockho (...)

An Emerging Third Way

Erosion of Shareholder Value
Paper by Cynthia A. Williams and John M. Conley. There is an active debate among corporate law professors about the exte (...)

Shareholder Value and Employee Interests: Intersections Between Corporate Governance, Corporate Law and Labour Law

Shareholder value, Australia
The focus of this paper by Anthony O'Donnell, Richard Mitchell and Ian Malcolm Ramsay is on three core issues. We first (...)

Interview Mintzberg on the Flaws of Shareholder Value

Discussing Shareholder Value Perspective, Trainings, Workshops
Interview with Professor Henry Mintzberg on CONs of the shareholder value perspective, in particular in the US. Also he (...)

Negotiated Shareholder Value

Recent Changes in Germany
This paper by Sigurt Vitols contributes to the literature addressing recent changes in the German variant of the stakeho (...)

The purpose of the corporation: Shareholder-value maximization?

Shareholder value, corporate target, corporate governance
Paper by Petra Joerg a.o. Allegedly, there is widespread consensus that firms should maximize shareholder value, and tha (...)

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Compare with the Shareholder Value Perspective: Value Based Management  |  Stakeholder Value Perspective  |  Ashridge Mission Model  |  Core Competence  |  Clarkson Principles  |  Intrinsic Stakeholder Commitment  |  Strategic Stakeholder Management  |  Stakeholder Analysis  |  Stakeholder Mapping  |  Strategic Intent  |  Seven Surprises  |  Spiral Dynamics  |  Moral Purpose  |  Strategic Management


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