Many scholars and managers endorse the idea that the primary purpose of the firm is to make

money for its owners. This shareholder wealth maximization objective is justified on the grounds that
it maximizes social welfare.. In this article, the first of a two-part set, we argue that, although this
shareholder primacy model may have been appropriate in an earlier era, it no longer is, given our
current state of economic and social affairs. To make our case, we employ a utilitarian moral standard
and examine the apparent logical sequence behind the link between shareholder wealth
maximization and social welfare. Upon close empirical and conceptual scrutiny, we find that
utilitarian criteria do not support the shareholder model; that is, shareholder wealth maximization is
only weakly linked to social welfare maximization. In view of the dubious validity of this sequential
argument, we outline some of the features of a superior corporate objective a variant of normative
stakeholder theory. In the second article, we will advance and defend our preferred alternative and
then discuss some institutional arrangements under which it could be implemented.

The view that firms (managers) behave as if their goal is to increase shareholder wealth is the
shareholder-wealth-maximization principle. While many might agree this principle governs
managerial behavior, it continues to arouse intense scrutiny, adoration, and condemnation. We begin
by summarizing the economic rationale behind and the welfare consequences of managers pursuing
this principle. Numerous writings articulate the principle, including the influential Friedman (1970)
and Jensen (2001). Friedman (1970) encapsulates the principle by imploring managers as
shareholders’ agents to “conduct the business in accordance with their desires, which will generally
be to make as much money as possible while conforming to the basic rules of the society, both those
embodied in law and those embodied in ethical custom.”

The argument that managers should seek to increase shareholder wealth begins with the premise
that the society’s resources are scarce. Judicious use of scarce resources implies that resources
should be directed toward higher net-value activities. If prices measure opportunity costs and
benefits, the net value of an activity can be determined by subtracting the price of resources devoted
to an activity from the sales revenues generated by the activity. Because a given activity might
involve a multi-period commitment, employing resources that can be used for multiple periods (e.g.,
plant, property, and equipment), a net present value calculation is often necessary to compare cash
inflows and outflows occurring in different periods. This net present value corresponds to the effect
of the project on its owner’s wealth. These arguments render the following proposition: Judicious
use of society’s resources implies each project’s owners maximize the value of their projects.

Many individuals with wealth do not have attractive projects of their own. These individuals will seek
projects that promise higher returns, placing their wealth in the hands of project managers. In doing
so, the wealth owner must add the cost of the project managers’ effort and expertise to the
calculation. Manager effort and expertise are simply another of the society’s scarce resources. Thus,
separating the owner of wealth from the wealth managers does not alter the conclusion that
judicious use of society’s resources requires wealth owners to seek higher value projects. If we view
firm managers as the project managers and shareholders as the wealth owners, our logic implies that
firm managers judiciously employ a society’s resources when they seek to increase shareholder
wealth.

Notwithstanding this argument, the shareholder-wealth-maximization principle has been the subject
of criticism from many economists, social activists, prominent business executives, and politicians.
We divide this objection into four more specific criticisms:

Shareholders might wish to pursue objectives other than or in addition to wealth maximization, e.g.,
concern for the environment. This is a two-part criticism: (a) Managers are reluctant to pursue other
objectives because those run afoul of wealth maximization; and (b) Pursuit of the other objectives is
a means to increase shareholder wealth, but managers do not fully appreciate it. We explain that the
political realm might be a better path to the pursuit of the objectives contrary to wealth
maximization, because competition undermines firms seeking other, unrelated objectives and
managers face an intractable problem when trying to consolidate competing objectives into a distinct
target. As for the objectives consistent with maximization of shareholder wealth (e.g., sensitivity to
worker happiness), managers would and should gladly embrace these subject to the constraints of
competition, law and ethical custom.

Firms might plunder other stakeholders. This idea, perhaps originating in the theory that labor
creates all value, was given graphic voice by Marx, e.g., “Capital is dead labor which, vampire-like,
lives only by sucking living labor, and lives the more, the more labor it sucks.” We explain that
competition and constraints imposed by law and ethical standards minimize, if not eliminate, the
exploitation of (or theft from) other stakeholders as a means to increase shareholder wealth.
Competitive product, labor, and capital markets counter the pull of incentives to maximize
shareholder wealth at the expense of other stakeholders.

Managers are shareholders’ agents and they will pursue their own objectives. This well-known
incentive (agency) conflict is hardly unique to shareholder-wealth-maximizing organizations. Any
organization, regardless of the objective one wishes its managers to pursue, encounters incentive
conflicts. For example, incentive problems exist in non-profits and government.

Managers and shareholders might suffer from behavioral biases. We explain that such biases would
also hamper organizations seeking alternative goals.

Before we delve into each of the aforementioned four criticisms, we begin by assuming that investors
in corporate organizations seek to maximize the value of their investment. Therefore, we expect to
observe firms and management teams adopt the goal of shareholder wealth maximization and
expect them to compete to devise the most efficient means of achieving this goal. We describe the
economic consequences of pursuing the objective of wealth creation and implications for social
welfare under a set of assumptions (a “positive” approach). The merits of pursuing other objectives
is a normative question. All we can argue is that societies are (predicted to be) poorer as a result.

What then to make of the alternative objectives that are the passion of many individuals, who might
also be shareholders? Forming a consensus might be impossible (Arrow, 1951; Gibbard, 1973;
Satterthwait, 1975). Still, competing objectives espoused by shareholders and members of society, in
our opinion, become the purview of politics. We recognize that politics and law are imperfect
avenues to convert these competing shareholder objectives into restraints on firm actions. Politics is
fraught with challenges encountered in getting the electorate energized about an issue, acting on it
either directly or through elected representatives, and thus bringing about a change that reflects the
collective (majority) objective. However, we explain below that the political route dominates the
alternative of expecting managers to embrace a multiplicity of objectives.

While we champion shareholder wealth maximization, to be clear, our position is not that society’s
goal should be unconstrained shareholder-wealth maximization. Hyman Roth is one Hollywood
avatar of this position. When discussing the murder of Moe Green with Michael Corleone, he says,
“This is the business we’ve chosen. I didn’t ask who gave the order, because it had nothing to do with
business.” (The Godfather Part II, 1974). Rule of law is necessary to prevent coercion and fraud. Laws
and ethics, as well as competition, constrain the scope of actions of a corporation. Examples of legal
constraints include laws against bribery, child labor, and forced labor. Ethical principles, such as
honesty, keeping firmly to one’s word, and the sanctity of human beings, constrain individual
behavior in situations ill-suited for the state’s heavy hand. Still shareholder wealth maximization
remains the objective subject to these constraints and future constraints as the society’s objectives
evolve and morph into new laws and ethical customs.

Perhaps, criticism of shareholder wealth maximization arises because of a distaste for the concept as
a normative proposition despite the fact that the proposition predicts firm behavior. That is, we face
a disagreement about values masquerading as a disagreement about facts. We explain shareholder
wealth maximization is an efficient means to maximize societal wealth. We do not argue that
society’s goal should be to maximize wealth. The end of a kinder, finer, freer, more just and peaceful
society is unlikely to be reached solely by increasing a society’s wealth. Advocates of other objectives
for social ends and the means to achieve those ends have worthy arguments.

We maintain that managers seeking to increase wealth are not acting immorally, per se. Therefore,
we take issue with those demonizing managers for taking steps to increase shareholder wealth while
staying within law and operating in a competitive economy. We observe that a competitive
environment reduces the chances that the firm will flourish if it pursues other objectives. In addition,
managers do not have the means to distill the varied preferences of present and future shareholders
into an objective function that could feasibly serve as guide for decision making. Other objectives
then become the purview of the political realm, cultural norms, and ethical outlook. Individuals
advocating other objectives must persuade other citizens to adopt their opinions and passions. Of
course, demonizing managers, companies, and industries solely because they pursue shareholder
wealth maximization might be an effective (though groundless) means of persuasion.

The possibility that CEOs might engage in mercenary behavior is real and therefore checks and
balances are essential to ensure competition in markets and legal (and ethical) behavior on the part
of managers. Adam Smith’s dim view of businessmen suggests, one must distinguish between
defending capitalism and apologizing for capitalists. “People of the same trade seldom meet
together, even for merriment and diversion, but the conversation ends in a conspiracy against the
public, or in some contrivance to raise prices” (Smith, 1776, p. 105). Likewise, we recognize the
necessity of a moral code and law to set bounds on permissible wealth-increasing actions. However,
the necessity of moral boundaries is not a distinguishing demerit of shareholder wealth
maximization. Any alternative goal is similarly incomplete without these constraints. Moreover, we
are tempted to give our needs the patina of “morality” to forestall consideration of trade-offs
necessary to meet them. After all, the prohibition against the murder of an innocent man is not
subject to a cost-benefit analysis. Moral arguments must be countered with moral arguments. They
cannot be refuted by efficiency (or even practical) arguments. Stakeholders will be inclined to make
moral claims to stymie counter arguments.

Mindful of this dubious pull, we seek a method to guide managers in choosing among legally and
ethically permissible actions. Moreover, shareholder wealth maximization is not incompatible with
strategies that, for example, take into account sustainability, the firm’s local community, or, customer
and employee satisfaction. If paying attention to sustainability increases firm value, that is what
managers will (and should) do. Shareholder wealth maximization would be the criterion managers
apply in deciding how much to invest in “socially responsible activities” similar to any other
corporate investment decision they make.

To understand and make it clearer, we should pay attention to several definitions of shareholder,
stakeholder and theories of shareholder and stakeholder and what the differences between them
are, and what debates between them?

First, what is shareholder? According to the web page of “defining the world of investing-Investor
Glossary”,” A shareholder is an individual or organization owning stock in a company. Shareholders
have a legal claim on a percentage of the company’s earnings and assets, and share the same level of
limited liability as the company itself. In cases of bankruptcy, shareholders generally lose the entire
value of their holdings”.

Next, what is stakeholder? According to “Business dictionary.com”, it is “a person, a group, or an

organization that has a direct or indirect stake in an organization because it can affect or be affected
by the organization’s actions, objectives and policies. Key stakeholders in a business organization
include creditors, customers, directors, employees, government (and its agencies), owners
(shareholders), suppliers, unions, and the community from which the business draws its resources”.

Form the financial point view, the objective of a firm is to maximize the wealth to the shareholders.
Nevertheless, nowadays people say that the wealth maximization is only focused on its shareholders.
The followings below are some views supporting and not supporting to demonstrate to the things
above.
According to H. Jeff Smith (2003), Shareholder theory asserts that shareholder advances capital to a
company’s managers, who are supposed to spend corporate funds only in ways that have been
authorized by the shareholders.

Furthermore, Milton Friedman (1970) is the man supporting this theory very much. He made the
most well-known version of the shareholder theory in the following passage in “Capitalism and
Freedom”: “In such an economy [“a free economy”], there is one and only one social responsibility of
business – to use its resources and engage in activities designed to increase its profits so long as it
stays within the rules of the game…without deception or fraud”. In his essay “The Social
Responsibility of Business Is To Increase Its Profits” Friedman gives a somewhat different statement
of the theory: In a free-enterprise, private property system, a corporate executive is an employee of
the owners of the business. He has direct responsibility to his employers. That responsibility is to
conduct the business in accordance to with their desires, which will generally be to make as much
money as possible while conforming to the basic rules of the society, both those embodied in law
and in ethical custom.

One more view supporting this theory is posted by Todd Henderson (2010). He argued that while the
duty to maximize shareholder value may be a useful short hand for a corporate manager to think
about how to act on a day to day basis, this is not legally required or enforceable. The only constraint
on board decision making is a pair of duties – the “duty of care” and the “duty of loyalty.”The duty of
care requires boards to be well informed and to make deliberate decisions after careful consideration
of the issues. Importantly, board members are entitled to rely on experts and corporate officers for
their information, can easily comply with duty of care obligations by spending shareholder money on
lawyers and process, and, in any event, are routinely indemnified against damages for any breaches
of this duty. The duty of loyalty self evidently requires board members to put the interests of the
corporation ahead of their own personal interest. And, Dodge v. Ford Motor Co., (1919) supposed
corporations are organized and acted for carrying on primarily profit of the stockholders. Directors
are employed on behalf of owners, has responsibility to bring more profit into strongbox of
employers. They are simultaneously assigned power and duty for making decision so as to reach
purpose of proprietors.

Different with the above mentioned views, the stakeholder theory says that corporations should be
run for the benefit of all “stakeholders”, not just the shareholders (Thomas L. Carson -2003). Also, R.
Edward Freeman (2004) is the most prominent defender of the stakeholder theory. In his paper “A
Stakeholder Theory of the Modern Corporation” Freeman writes: “Corporations shall be managed in
the interests of its stakeholder, defined as employees, financiers, customers and commodities”.

Moreover, in an earlier paper written together with William Evan, Freeman states as follows: “The
corporation should be managed for the benefit of its stakeholder: its customers, suppliers, owners,
employees, and local communities. The rights of these groups must be ensured, and further, the
groups must participate in some sense in decisions that substantially affect their welfare.
Management bears a fiduciary relationship to stakeholders and to the corporation as an abstract
entity. It must act in the interests of the shareholders as their agent, and it must act in the interests
of the corporation to ensure the survival of the firm, safeguarding the long-term stakes of each
group”.

Also, according to H. Jeff Smith stakeholder theory asserts that managers have a duty to both the
corporation’s shareholder and “individuals and constituencies that contribute, either voluntarily or
involuntarily, to [a company’s] wealth-creating capacity and activities, and who are therefore its
potential beneficiaries and/or risk bearers.” Managers are agents of all stakeholders and have two
responsibilities: to ensure that the ethical rights of no stakeholder are violated and to balance the
legitimate interests of the stakeholders when making decisions. The objective is to balance profit
maximization with the long-term ability of the corporation to remain a going concern.

From the above views of the shareholder and stakeholder theory, I support the ideal “shareholder
wealth maximization should be a superior objective over stakeholder interest” because as follows:

As we know, from a modern financial perspective a firm’s main objective is to maximize its
shareholder wealth. The wealth is shown via the market by the price of company’s common stock,
which is a reflection of the 3 key variables: timing of cash flows, magnitude of cash flows and the risk
of the cash flows that investors expect a firm to generate over time.

Normally, profit maximization after tax (ETA) is considered as the main purpose of the firm, but it is
not regarded as a objective to maximize shareholder wealth because earnings per share (EPS) will be
more important than total profits. A company can increase its total profits by making an issue of
stocks and using the returns to invest in other bonds for profits. Even maximizing profit per share,
but, is not a completely suitable goal, firstly because it does not show the time factor or period of
expected interest. Secondly, next mistake of maximizing EPS is that it does not take interest in the
risk or uncertainty of the future return flow. So, there are several investment projects will more risky
than others. Consequently, the prospective flow of EPS would not be more ensured if these projects
were undertaken. Besides, a firm will be more or less risky to be conditional on the total of debt
relevant to equity in its capital structure. This risk is considered as financial risk and it contributes to
the uncertainty of the future flow of earnings per share too. For instance, there are two companies A
and B with the same of the expected future EPS. However, the earnings flow of the company A
depends significantly more uncertainty than the earnings flow of the company B, so the market price
per share of the company A’s stock may be lower.

For the mentioned-above reasons, a maximization objective of EPS may not be the same as those
maximizing market price per share. The value of a company’s stock in the market shows the focal
judgment of overall market participants with what the value is of the specific business. It mentions to
present and prospective EPS, the timing, duration, and risk of these returns, and any other factors
relating to market price of stock. The market price is regarded as a performance index of firm’s
progress and this let us know that how well management is running in behalf of its stockholders.
In some circumstances the management goals perhaps differ from those of the firm stockholders. In
a corporation (especially it goes stock market) whose stock is extensively held, stockholders give a bit
of their control or influence over the company operations. When the company control is segregated
from its ownership, management does not completely try their best to do jobs for the best benefits
of the stockholders. They perhaps feel satisfied to run and seek a growth level accepted and
concerned a lot with maintaining their own existence than with firm’s value maximization to its
shareholders. The top important purpose to this management may be its own survival. Consequently,
this leads to unwilling to face with reasonable risks for their fear of making a mistake, hence
becoming easily seen to the suppliers of capital from outside. Then, these suppliers may give out a
threat to management’s existence. To exist over a long time, management has to know to behave by
a way that is reasonably suitable with maximization of shareholder value. However, the objectives of
the parties are not always necessary the same. Maximizing shareholder value, subsequently, is a
consistent example for how a firm should act. When management does not follow these guides, we
must recognize this as a restriction and make decision for the opportunity cost. This cost is
measurable only if we decide what the result would be had the firm attempted to maximize value to
shareholder.

The purpose of capital markets is to effectively apportion savings in an economy from last savers to
last users of capital who invest in real properties. If savings are interested in the top auspicious
investment chances, a reasonable economic criteria must exist that manages their flows. In general,
the savings allocation in an economy happens on the foundation of expected earnings and risk. The
value of a business’s stock in the market is both of these factors. Accordingly, it reflects the market’s
equilibration process between returns and risk. If making decisions in accordance with the probably
effect upon the market value of its stock, a business will only be able to attract capital from outside
when its investment chances defend the use of that capital in the whole economy.

However, this does not mean management will not mention to social responsibility and stakeholders’
interests. Namely, Social responsibility of a firm towards shareholders is to ensure good return on
investment, towards employees is fair pay and working conditions, towards suppliers is prompt
payment and fair procurement process, towards customers is fair price, safe product and after sales
service and towards local community is providing jobs and supporting the community development
activities, supporting education, and becoming actively involved in environmental issues like clean air
and water.

Hence, the stakeholders’ interest is the interest of stakeholders said above. The stakeholder interests
sometimes conflict or influence with the shareholder’s interests in maximizing wealth. Furthermore,
the criteria for social responsibility and stakeholder’s interests are not clearly specified, making
formulation of an appropriate goal function difficult. Therefore, manager has to know to coordinate
between the shareholder wealth maximization and its stakeholder interests with superior financial
results.

In conclusion, maximizing shareholder wealth is a superior objective which a business firm must
obligatorily fulfill to survive. If firms do not operate with the goal of shareholder wealth maximization
in mind, shareholders will have little incentive to accept the risk necessary for a business to thrive.
However, this maximization of wealth is not understood to be at all costs. It will be a contented
combination between shareholder and stakeholder interests with best financial results. Depending
on each specific situation, each specific circumstance and each specific condition of firms, they can
sort out what is the best solution for their organization.

Who owns a corporation? Shareholders do. These are the individuals, businesses, and institutions
that have an ownership interest in a company after purchasing shares of that company's stock. Even
if your business is a one-person shop, you are the shareholder because of your invested interest in
your company. Because shareholders own the firm, they are entitled to the profits of the firm.

Shareholder wealth is the appropriate goal of a business firm in a capitalist society. In a capitalist
society, there is private ownership of goods and services by individuals. Those individuals own the
means of production to make money. The profits from the businesses in the economy accrue to the
individuals.

Shareholder Wealth Maximization 101

When business managers try to maximize the wealth of their firm, they are actually trying to increase
the company's stock price. As the stock price increases, the value of the firm increases, as well as the
shareholders' wealth.

The Managers of the Firm

People often think that the managers of a firm are the owners. In the case of a small business or
partnership, that might be true (e.g., one owner who also the manager). In a larger business, there
may be many levels of management and staff, and they do not necessarily own the firm. Aside from
their salaries and benefits, do they profit from the business? Only if they own shares of stock in the
company. When employees are also shareholders, they tend to have a greater sense of responsibility
to the firm.

Consequently, many companies encourage employees to become shareholders. In fact, some

businesses offer shares of stock to their employees at a discount through an Employee Stock
Purchase Plan (ESPP).

Conflicts Between Owners and Managers

Because the managers of a firm are directed and guided by a Board of Directors, and because they
do not profit directly from the firm's goal to maximize shareholder wealth (unless they are also
shareholders), conflict can sometimes arise between stockholders and managers. This conflict is
called the agency problem.

Managers serve as agents of the shareholders. If there is an agency problem, it is imperative to find a
resolution as soon as possible to prevent problems within the business that can impede
performance.

Social Responsibility

Can a business firm that is trying to maximize the wealth of their shareholders also be socially
responsible? Absolutely! Will they really care about the welfare of society as they try to increase
their stock price? Again, the answer is yes.

Consider the 2008 Great Recession and one of its main causes - the subprime mortgage crisis. Were
the banks that issued those mortgages being socially responsible? Many people answer with a
resounding "no"; it appears that they were worried about their investment portfolios instead of
properly loaning money to customers, which is their charge. Those investment portfolios were filled
with toxic assets, which eventually compromised the operations of many financial institutions and
caused the failure of several big banks.

As a result, their share prices fell right along with them. One can surmise to say that they were not
socially responsible.

On the other hand, consider General Motors. After almost failing in the Great Recession, GM turned
itself around, repaid its debt, and developed "greener" vehicles. As a result, it realized an increase in
its share price. Why? GM was taking on the mantle of social responsibility rather than exploiting for
financial gain. Business firms cannot exist and profit in the long run without being socially
responsible.

Profit Maximization

Why are business firms not seeking profit rather than an increase in share price? One reason is that
profit maximization does not take the concepts of risk and reward into account as shareholder
maximization does. The goal of profit maximization is, at best, a short-term goal of financial
management.

The shareholders want the company to undertake activities that ensure having a positive effect on
the stock price or increase dividend or actions that improve the financial condition of the company in
the immediate future.
Stakeholders, on the other hand, focus on the long-term longevity of the organization, apart from the
financial performance of the company. The stakeholders (employees and staff) may seek the better
quality of services from the company rather than the higher profitability. In other words,
shareholders focus on quantity and stakeholders focus on quality.

CONFLICT OF INTEREST

SHAREHOLDER’S WEALTH MAXIMIZATION VS. STAKEHOLDER WELFARE

Shareholder’s wealth maximization is a well-accepted corporate objective in almost whole the world
barring a few exceptions. Indisputably, it is a superior and healthier goal compared to profit
maximization which was lacking a long-term perspective. Apart from shareholders, there are various
parties which are affected by a business conducted by an organization viz. employees, customers,
suppliers, communities etc. Wealth maximization as a corporate goal does not mention concerns of
any of these parties except shareholders. Hence, a stakeholder’s welfare is evolving as a further
improved and wider corporate objective.

Should a manager take the decision only for shareholders and neglect the interest of all the other
stakeholders? Let us think the other way round. How is a managerShareholder’s Wealth
Maximization Vs. Stakeholder Welfare as a Corporate Objective able to maximize wealth and welfare
of shareholders? It is only with the support of all the other stakeholders. If the supplier does not
supply good raw material, can managers produce good quality products? If the employee does not
work efficiently, can the managers alone do everything? If the customers are provided with low-
quality goods, will they continue buying them? The answer to all these questions is a clear “No”.

If we see, there is a simple math. The management is able to serve the shareholder’s objective with
the help of other stakeholders of the business and stakeholders are also not doing it for charity.
Naturally, they would also look for their well-being. If their objective is not fulfilled, sooner or later
their interest in working with the organization will be lost and they may mend their way. Without
welfare of the stakeholders, shareholder’s wealth creation is not possible.

In different countries, the different culture is adopted. In the US, UK etc, wealth maximization of
shareholders is the main corporate objective

In different countries, the different culture is adopted. In the US, UK etc, wealth maximization of
shareholders is the main corporate objective whereas, in countries like Germany, the interest of the
workers is given first priority. In Japanese companies, employees and customers are kept at par with
shareholders.

Have we seen a tree where only one branch is grown and the rest remain as it is? When a tree grows,
all its branches grow. Wealth maximization as a sole objective resembles the first situation which is
not practical and possible whereas the stakeholder’s including shareholders welfare resembles the
second situation which is natural and healthier.

Growth and development of a business have a number of requirements and not only the money.
Shareholders only provide money and rest is provided by the other stakeholders of the business.
When the input required for growth is shared by all the stakeholders, the outcome in the form of
wealth and welfare should also be shared among all the stakeholders.

When business managers try to maximize the wealth of their firm, they are actually trying to increase
the companys stock price. As the stock price increases, the value of the firm increases, as well as the
shareholders wealth. The managers of a firm are directed and guided by a Board of Directors, and
because they do not profit directly from the firms goal to maximize shareholder wealth , conflict can
sometimes arise between stockholders and managers.

This is a two-part criticism: Managers are reluctant to pursue other objectives because those run
afoul of wealth maximization; and Pursuit of the other objectives is a means to increase shareholder
wealth, but managers do not fully appreciate it. We explain that the political realm might be a better
path to the pursuit of the objectives contrary to wealth maximization, because competition
undermines firms seeking other, unrelated objectives and managers face an intractable problem
when trying to consolidate competing objectives into a distinct target. As for the objectives
consistent with maximization of shareholder wealth , managers would and should gladly embrace
these subject to the constraints of competition, law and ethical custom. Still shareholder wealth
maximization remains the objective subject to these constraints and future constraints as the
societys objectives evolve and morph into new laws and ethical customs. The shareholder wealth
maximization is an efficient means to maximize societal wealth. In addition, managers do not have
the means to distill the varied preferences of present and future shareholders into an objective
function that could feasibly serve as guide for decision making. Other objectives then become the
purview of the political realm, cultural norms, and ethical outlook.

The shareholders and stakeholders including the employees, customers, environment and the
Stakeholders interests would ultimately result in the furthering of the long-term interests of the
company. What is required in modern times is a corporate governance policy that would place the
stakeholders interests at the same length as that of the shareholders. This is in realization of the fact
that the stakeholders equally bear the burden of corporate operations in the same manner as the
shareholders interests of the stakeholders at the same length as those of the shareholders.