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    Muhammad Areeb
    The document provides instructions for a 2-page summary of an article that is critical of the idea that corporations should aim to maximize shareholder value. The article argues that shareholders own shares, not the company itself, and that directors have discretion over how to balance the interests of shareholders with other stakeholders. While increasing shareholder value can benefit shareholders in the short-term, it may harm the company's long-term prospects and stability. The document concludes that corporations should pursue decent performance across multiple objectives like future growth, stability, and stakeholder interests, rather than optimizing shareholder value alone.

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    Course Material

    Uploaded by

    Muhammad Areeb
    24 views2 pages
    The document provides instructions for a 2-page summary of an article that is critical of the idea that corporations should aim to maximize shareholder value. The article argues that shareholders own shares, not the company itself, and that directors have discretion over how to balance the interests of shareholders with other stakeholders. While increasing shareholder value can benefit shareholders in the short-term, it may harm the company's long-term prospects and stability. The document concludes that corporations should pursue decent performance across multiple objectives like future growth, stability, and stakeholder interests, rather than optimizing shareholder value alone.

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    The document provides instructions for a 2-page summary of an article that is critical of the idea that corporations should aim to maximize shareholder value. The article argues that shareholders own shares, not the company itself, and that directors have discretion over how to balance the interests of shareholders with other stakeholders. While increasing shareholder value can benefit shareholders in the short-term, it may harm the company's long-term prospects and stability. The document concludes that corporations should pursue decent performance across multiple objectives like future growth, stability, and stakeholder interests, rather than optimizing shareholder value alone.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    24 views2 pages

    Course Material

    Uploaded by

    Muhammad Areeb
    The document provides instructions for a 2-page summary of an article that is critical of the idea that corporations should aim to maximize shareholder value. The article argues that shareholders own shares, not the company itself, and that directors have discretion over how to balance the interests of shareholders with other stakeholders. While increasing shareholder value can benefit shareholders in the short-term, it may harm the company's long-term prospects and stability. The document concludes that corporations should pursue decent performance across multiple objectives like future growth, stability, and stakeholder interests, rather than optimizing shareholder value alone.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Assignment 01

    Write a 2-page summary of the Article “The Dumbest Business Idea Ever- The Myth of
    Maximizing Shareholder Value”. (Uploaded on Portal as Course Material)

    Instructions:

    Submission Deadline: Thursday 3rd September 5.00 pm

    Submission Method: Only through Portal

    You should prepare your assignment in this word file after providing your name and roll number.

    Name: Muhammad Areeb

    Roll No: 19P01954-(C1)

    The Article starts with a disclosure that shareholders generally wanted managers to do was to
    maximize “shareholder value,” measured by share price. With the passage of time Executive
    compensation rules, governance practices, and federal securities laws, have all been “reformed” to
    give shareholders more influence over boards and to make managers more attentive to share price.
    However still this control didn’t turn out well as rise of shareholder value thinking and subsequent
    declines in investor returns. In twentieth century, large public companies followed a philosophy
    called managerial capitalism, as organizational control was in hand of Board of director. They
    viewed themselves as self-selecting and decision-making bodies, no be so called servant of
    shareholder and server for corporate stakeholder including customers, creditors, employees, and
    the community. Share price are not assumed to be the best proxy for corporate performance, to
    which many corporations formed in 19th and 20th century like providing road, canals, banks and
    railroad structured themselves to provide good service at a reasonable price – not to maximize
    investment returns.

    Many people placed their argument and concluded their view, where Jensen and Meckling’s view
    was that key problem in corporations was getting wayward directors and executives to focus on
    maximizing the wealth of the corporations’ shareholders. Many business experts take shareholder
    primacy theory as dominant to holds the need of reforming the corporation, as managerialism were
    inefficient and outmoded. Shareholder primacy rhetoric also appealed to powerful interest groups
    like Institutional investor, CEO and corporate raiders. It is important to know that shareholder
    primacy theory was first advanced by economists, not lawyers. This gives the idea that corporations
    should be managed to maximize shareholder value is based on factually mistaken claims about the
    law. It is believed that shareholders “own” corporations, but what shareholder really own is are
    shares, a type of contact between the shareholder and the legal entity that gives shareholders
    limited legal rights.

    Many theories, strategies and research had shown different claims that are close to shareholder
    power and their profits. It is suggested that shareholders are legally entitled to all corporate profits
    after the fixed contractual claims of creditors, employees, suppliers. This implies to maximize the
    value of the shareholders’ residual interest, but also on other hand the law applies different rule
    that in healthy company the legal entity is its own residual claimant and the board of director has
    the decision to increase employees benefit from profit or to maximize the shareholder value. This
    further led misconception that director and executive are shareholder agent where “business
    judgment rule” holds that no enforceable legal duty to maximize shareholder value and choose any
    other lawful objective ensuring that shareholder primacy is a managerial choice – not a legal
    requirement. Researcher has claimed that superior business results are generated by increasing
    shareholder value. Strategies for increasing shareholder value can be profitable for one shareholder
    in one period of time and can be bad news for shareholders collectively over a longer period of
    time. Every shareholder has their own purpose, interest and value for owning the share. These
    divisions enforce them to believe that corporation should take care of only their interest even if it
    harms the other shareholders.

    Investor conflict having different short term and long term enforces them to invest with dynamite.
    This comes with different perspective that some investors have higher interest gain by pushing
    companies to adopt the business strategies can raise share price temporarily while possibly
    harming the company’s long-term prospects like effecting the health of the overall population of
    public companies. The differing interests of investors do not care if companies earn profits from
    illegal or socially harmful behaviors presenting immoral, unethical and economic inefficiency of
    company.

    Corporations should not try to optimize a single objective and maximize it. Rather it should pursue
    several objectives, and try to do decently well. Satisfy” can be combined with “suffice” coming with
    different meaning for company. Which means it should resolve conflicts among different
    shareholders. Managers are allowed to satisfice to invest in objective that contribute to future
    growth and increase stability but also, they should keep in mind that profits are necessary for the
    firm’s long-term survival. Once profitability is achieved, the firm can focus on satisfying other goals,
    like controlling risk, and taking care of its investors, employees, customers, even society.

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