Maximizing Shareholder Wealth
Brandon Campo
3/8/2012
BUSN 320
Word Count 392
Maximizing Shareholder Wealth
The goal of a firm and a financial manager should involve maximizing the wealth of a firm’s shareholders through achieving the highest possible value for the firm (Block 13). It is a vital task to oversee properly as a financial manager, and while the manager cannot directly control the firm’s stock price, it can act consistently with the desires of the shareholder. Accounting, financial and other irregularities can erode consumer confidence that says the system will operate in the best interests of shareholders, taxpayers and other constituents (Hintzen 2003). Therefore, ethical practices must be upheld to convey confidence to your clients.
Your clients care about two major topics when hiring you: what is their return going to be, and is it going to occur when promised. Current stock prices as well as future expectations of value are controlled by the economic environment, but are difficult to forecast. In addition, expectations of stockholders are constantly varying depending on the economic climate. For instance, during the economic boom of .com businesses, people had high expectations of their money spent because of similar stocks. However, many companies had very high stock prices, with no real earnings yet, which distorted to economic health of some companies (Block 14). As related to business firms, social responsibility concerns such things as protecting the consumer, paying fair wages to employees, maintaining fair hiring practices, supporting education, and becoming actively involved in environmental issues like clean air and water. Many people feel that a firm has no choice but to act in socially responsible ways; they argue that shareholder wealth and, perhaps, the corporations very existence depends upon its being socially responsible. However, the criteria for social responsibility are not clearly defined, making formulation of a consistent
3/8/2012
BUSN 320
Word Count 392
Maximizing Shareholder Wealth
The goal of a firm and a financial manager should involve maximizing the wealth of a firm’s shareholders through achieving the highest possible value for the firm (Block 13). It is a vital task to oversee properly as a financial manager, and while the manager cannot directly control the firm’s stock price, it can act consistently with the desires of the shareholder. Accounting, financial and other irregularities can erode consumer confidence that says the system will operate in the best interests of shareholders, taxpayers and other constituents (Hintzen 2003). Therefore, ethical practices must be upheld to convey confidence to your clients.
Your clients care about two major topics when hiring you: what is their return going to be, and is it going to occur when promised. Current stock prices as well as future expectations of value are controlled by the economic environment, but are difficult to forecast. In addition, expectations of stockholders are constantly varying depending on the economic climate. For instance, during the economic boom of .com businesses, people had high expectations of their money spent because of similar stocks. However, many companies had very high stock prices, with no real earnings yet, which distorted to economic health of some companies (Block 14). As related to business firms, social responsibility concerns such things as protecting the consumer, paying fair wages to employees, maintaining fair hiring practices, supporting education, and becoming actively involved in environmental issues like clean air and water. Many people feel that a firm has no choice but to act in socially responsible ways; they argue that shareholder wealth and, perhaps, the corporations very existence depends upon its being socially responsible. However, the criteria for social responsibility are not clearly defined, making formulation of a consistent
References: Block, S., Danielson, B., Hirt, G., (2011). Foundations of Financial Management, 14th Ed, New York, NY. McGraw-Hill Irwin. Dent, George. COMMENT: THE CASE FOR REAL SHAREHOLDER DEMOCRACY. Case Western Reserve Law Review, Spring2005, Vol. 55 Issue 3, p581-586, 6p Hintzen, Miles. Investors pay for executive abuses By: N.A.. USA Today, 11/04/2003