Theories for Profit Maximization for Corporate Directors Essay

Theories for Profit Maximization for Corporate Directors Essay

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Corporate directors have an important job of representing interests of stakeholders ranging from profit maximization in interest of shareholders, to a broader set of stakeholder interests such as creditors, employees and customers. These are governance systems with competing interests because you cannot focus on profit maximization for shareholders whilst keeping in mind stakeholders needs for employment and stability. The answer perhaps is found in “enlightened shareholder value” approach that provides a more comprehensive analysis on the issue by compromising interests of both parties.
The shareholder theory states that directors have delegation for decision making authority to manage the company with the exclusive purpose of maximizing shareholders return on investments. “In the traditional view of the firm, the shareholder view, the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them.” (Miles, 2011) Therefore, actin in company’s interests is to conduct the business in the way that promotes shareholder interest and value.
Possible limitation with this theory is the simply that you cannot and will not be able to content every shareholder. This decision does not necessarily take into consideration of other principles in profit maximizing in regards to immediate returns or lifetime investments.

A stakeholder is any individual who may be affected by the activities or affairs of the corporation
“Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted a...

... middle of paper ... a corporation at a different level than that of a stakeholder. Second, the interests of other stakeholders will be protected only in a way that such protection would promote shareholders’ interests. It is a multi-interest approach that requires that the interests of all groups are balanced rather than neglecting one group over another.
All stakeholders have interest in the corporation where their resources and livelihoods are utilized. Neglecting interests of any stakeholder or a shareholder, in most cases will work against the interest of the company, in the long run, interest of both parties. An enlightened shareholder value multifaceted approach needs to takes place to ensure that all appropriate interests are being served in an honest, fair approach to ensure shareholders, employees, customers, and environment get due diligence and reach satisfactory outcome.

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