Corporate Governance
One of the most significant debates about corporate governance centers on whether the
organization owes a greater responsibility to the shareholder who has invested in the company or
to the stakeholders and those who can most be affected by its actions, namely the employees,
suppliers, creditors, and customers.
After reviewing the resources for this week, respond to the following:
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� Use the Internet to research alternative goals for shareholder wealth maximization.
� Identify countries with goals that differ from the U.S. or countries that are home to firms that
have differing goals from those based in the U.S.
� Compare and contrast the difference between stakeholder focus goals versus shareholder
focus goals.
� What are potential problems with both?
There are a number of goals for shareholder wealth maximization. One of the reasons for
shareholder wealth maximization is to increase their wealth and to attain a high market value of
their shares (Adams, 2008). In addition, shareholders wealth maximization can be done with the
aim of increasing shareholder expectations, leading to reduced conflicts between the
management and the shareholders. These conflicts arising among the shareholders may be as a
result of directors managing money with less care since it is not their own. Companies can
address this issue by encouraging the directors and managers involved in the shareholder
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business to take note and interest on all matters arising from various interest groups to restore
and maintain sanity (Shleifer &Vishny, 1997).
Rappaport (2006) argues that countries differ from one another in matters related to
corporate social responsibility. In the United States,the shareholders are more protected by the
means of an extensive system of rules that ensure that the rights of the shareholders and the
stakeholders and protected accordingly. Germany and Japan had different goals as compared to
those of the United States; whereby, they aimed at shaping their banks to be more powerful
financial instruments with the capability of driving the economy. The issue of the type of the
large investors in the country is also what contributes to making of profit by the financial
suppliers with the aid of corporate governance. Large companies are incorporated to adopt the
corporate laws that serve the interest of the shareholders and this contributes to the use of
corporate governance inorder to gain profit.
Since shareholders and stakeholders forms different groups of people in a company, the
views and aspirations concerning the company may slightly differ (Ross, Westerfield, & Jaffe,
2013). Unlike the stakeholders, shareholders are more concerned with the economic activity of
their business thereby only seeing an organization in profitable terms and as instruments of its
owners. On the other hand, the stakeholders of a business are more concerned with the social
responsibility and demand that the business server the interest of all parties. The problem with
shareholders focus is that it neglects the dreams of other interest groups of the business while the
problem with stakeholders focus is that it may result into low profitability due to overindulgence
in social affairs. When the firm is undervalued, there are three methods of seeking to increase
shareholder value with the aid of market attention and they include the presence of managerial
agency that the shareholders must addressto be able to achieve positive results (Adams, 2008).
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The ability of market speculators to produce additional information about the firm at a cost is
another method for seeking to increase the shareholders of different companies.
Almazan, Benerji & Demotta (2008) argues that there are some ten principles when
followed well will result into increased shareholder and one of them is when one does not
manage earnings or provide earnings guidance. This is important because organizations only
comprise value when they invest at rates below the cost of capital. A company should also make
clear strategic decisions that will help in maximizing of the expected value, which is the
weighted average value for a range of plausible scenarios even if it’s at the expense of lowering
near-term earnings. Cash should be returned to the shareholders even when there are no credible
value-creating opportunities to be able to invest in the business since this will help result to
increased shareholders (Mallin, 2013). Senior executives and CEOs of companies ought to be
rewarded so that they can continue delivering quality services that will help lead to increased
shareholders. A company also has the responsibility of rewarding executives of the operating-
unit for being able to add superior multiyear value and the middle managers for having delivered
superior performance that influences the increase of shareholders directly. In order to bear the
risk of ownership, a company requires senior executives to do so and by the provision of
investors with value relevant information, there will be increased shareholder in the company.
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References
Adams, S. (2008). Fundamentals of Business Economics. Financial Management (UK), 46–48.
Retrieved from Business Source Premier Database
Almazan, A., Banerji, S., & DeMotta, A. (2008). Attracting attention: Cheap managerial talk and
costly market monitoring. Journal of Finance, 63(3), 1399–1436. Retrieved from
Business Source Premier Database
Mallin, C. (2013). Corporate Governance. Oxford University Press; 4 edition
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Rappaport, A. (2006). Ten ways to create shareholder value. Harvard Business Review, 66–77.
Retrieved from Business Source Premier Database
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate finance (10th Ed.). New York:
McGraw-Hill Irwin.
Shleifer, A., &Vishny, R. (1997). A survey of corporate governance. Journal of Finance, 52(2),
737–783. Retrieved from Business Source Premier Database
