A well set and realistic purpose established by a company that oftentimes affects its internal strategic choices. Most corporate objective goals used by a company will define the time frame predicted for their accomplishment and how the company's gain in doing so is to be evaluated(Keay A., 2007)
The proper corporate objective
The debates surrounding the proper corporate objective are distant from over. Academics and courts have continued disputed over the goals of the corporation and still, exist differing opinions. In the field of economics, the philosophy of shareholder profit maximization is believed as being so blatant that textbooks just state it, rather than fight for it. Variation from this objective is shaped as an agency problem emerging from the separation of possession and control, and failure to reach this goal is expected to be improved by corporate boards, shareholder view, shareholder exit, and the demand for corporate control. Administration and strategy scholars have, in current years, drifted toward one of two overlapping prospects that are at favor with the finance view. One perspective is that governance should be interpreted using a stakeholder lens. The different view is that rather than questioning whether stakeholders or shareholders matter, companies should balance various goals. In the areas of law and ethics, the intellectual conflict within the stakeholder and the shareholder, agreements, and identities, and public and private thoughts of the corporation have likewise been visible in various deliberations (Sundaram A., Inkpen A., 2007).
According to Sundaram A, Inkpen A, "shareholder value maximization should be the preferred corporate goal not because it is law, not because it may be, as some argue, the ethical thing to do, nor because it is expedient because it is based on an observable and measurable metric. Our argument is that it should be the goal because it is the best among all available alternatives, and thus the preferred goal for managers formulating and implementing strategy"(Freeman R., Wicks A., Parmar B., 2004).
The Primacy of Creating Value for Stakeholders
Sundaram A, Inkpen A suggest that there is a five-point argument for supremacy of creating value for stakeholders and it is as follows:
- The goal of maximizing shareholder value is prostakeholder
- Maximizing shareholder value creates the appropriate incentives for managers to assume entrepreneurial risks.
- Having more than one objective function will make governing difficult, if not impossible
- It is easier to make shareholders out of stakeholdersthan vice versa.
- In the event of a breach of contract
or trust, stakeholders, compared with shareholders, have protection (or can seek remedies) through contracts and the legal system (Freeman R., Wicks A. Parmar B., 2004)
- Freeman R., Wicks A., Parmar B., (2004), Stakeholder Theory and The Corporate Objective Revisited, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Frino A., Hill A., Chen Z., (2015), Introduction to Corporate Finance, Pearson Higher Education AU, Australia
- Jensen M.C., (2000), Value maximization and the corporate objective function, Harvard Business School,
- Keay A., (2007), Tackling the Issue of the Corporate Objective: An Analysis of the United Kingdom’s Enlightened Shareholder Value Approach, "Sydney Law Review", 577
- Keay A., (2011), The Corporate Objective, Edward Elgard Publishing Limited, Cheltenham,
- Sundaram A., Inkpen A., (2004), The Corporate Objective Revisited, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Walsh J., (2004), Introduction to the Corporate Objective Revisited Exchange, Institute for Operations Research and the Management Sciences, Maryland, USA,
- Yan M., (2017), Beyond Shareholder Wealth Maximisation: Towards a More Suitable Corporate Objective for Chinese Companies, Routledge.
Author: Gabriela Zabawa