The Corporate Objective Revisited

Abstract

T he stock market convulsions and corporate scandals of 2001 and 2002 have reignited debate on the purposes of the corporation and, in particular, the goal of shareholder value maximization. We revisit the debate, re-examine the traditional rationales, and develop a set of new arguments for why the preferred objective function for the corporation must unambiguously continue to be the one that says "maximize shareholder value." We trace the origins of the debates from the late nineteenth century, their implications for accepted law and practice of corporate governance in the United States, and their reflection in shareholder versus stakeholder views in the organization studies literature and contractarian versus communitarian views in the legal literature. We address in detail possible critiques of the shareholder value maximization view. Although we recognize certain boundary constraints to our arguments, we conclude that the issues raised by such critiques and constraints are not unique to the shareholder value maximization view, but will exist even if the firm is managed on behalf of nonshareowning stakeholders.

Stakeholder Theory and “The Corporate Objective Revisited”: A Reply

“…As the appropriate citations in that section point out, our arguments are simply a synthesis of well-known corporate law scholars' views that nonshareowning stakeholders have judicial recourse through invocation of contract and tort laws that shareholders in their dealings with the corporation typically do not. Freeman et al do the same with Point 4 (Sundaram and Inkpen 2004), which argues that it is easier for nonshareowning stakeholders to become shareholders than the reverse. Surely, for example, it is far easier for an employee or supplier to become a shareholder than for a shareholder to become an employee or supplier of the corporation.…”

“…For instance, Point 5 in our paper (Sundaram and Inkpen 2004), which argues that stakeholders have remedies that shareholders do not have, addresses the limitedness of shareholders' legal recourse. In suggesting that Point 5 involves asset specificity, Freeman et al (2004) seem to misinterpret the foundations of our reasoning.…”

Retos actuales del gobierno corporativo en torno a la creación de valor

“…Fruto de los escándalos corporativos que ocurrieron en Estados Unidos durante los años 2001 y 2002, Sundaram & Inkpen (2004) hicieron una revisión del debate acerca de los propósitos corporativos y concluyeron que la maximización de valor para el accionista es la mejor opción, ya que las críticas relacionadas con los incentivos de transferencias y las implicaciones de las fallas contractuales no son exclusivas de los accionistas, sino que pueden suceder con cualquier grupo de interés. Frente a esta postura Freeman, Wicks y Parmar (2004) concluyeron que la meta de crear valor para los grupos de interés mejora la creación de valor para los accionistas, a su vez crea incentivos apropiados para que los directivos asuman riesgos empresariales, y clarifica la elección de los medios para el logro de los objetivos.…”

Foundations of Responsible Leadership: Asian Versus Western Executive Responsibility Orientations Toward Key Stakeholders

“…Proponents of the former assert that executive decision-making should focus exclusively on maximizing shareholder value (e.g., Levitt 1958;McCloskey 1998;Sundaram and Inkpen 2004). The most prominent advocate was the late Milton Friedman, who argued that ''[t]here is one and only one social responsibility of business-to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game' ' (1970, p. 6).…”