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A Managers Responsibility Should Be to Increase the Profits of the Business in Order to Maximise the Wealth of the Shareholders. This Should Be the Sole Focus of Their Work Effort and Their Rewards Should Be Calculated

In: Business and Management

Submitted By tthakkar
Words 1867
Pages 8
Introduction

Choosing a corporate objective of a firm is an extremely important process and is a determinant to the success/failure of a corporation in controlling the market. To gain control of the market shareholder wealth maximisation and stakeholder interest satisfaction play a key role in the creating profit for the company. Should a manager who makes the final call focus solely on maximising shareholder value or should he/she also try to satisfy stakeholder interests which at the end of the day involves themselves.
We will discuss points both for and against a manager’s responsibility of increasing long term profits of a business in order to maximise shareholder wealth and whether any rewards they receive should be calculated on this basis.

A shareholder is an individual who owns one or more shares of stock in a company. They are the owners of the company, meaning if the company is doing well then they get a greater share of the profits and if the company does poorly then they have to suffer the losses. A sole objective of shareholder wealth maximisation should cause managers to take decisions that balance returns and risk in such a way that benefits the shareholder.
Wealth maximisation may imply that interests of only one member of the coalition are pursued (the shareholder) perhaps at the expense of others. To an extent, this point is true as the shareholder wealth maximisation criterion provides a sound basis for financial decisions which then must be balanced against the objectives directed towards other members of the coalition (stakeholders).
A Stakeholder is any person, group or organisation that has an interest/concern in the firms activities. Michael Jensen (2001) who was a management theorist, believes the stakeholder theory which aims to ‘create as much value as possible for shareholders’ effectively…...

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