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Discuss: Shareholder Wealth vs Corporate Wealth Maximization

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The primary goal - and in effect the only goal - of the management at U.S. publicly held corporations is to maximize the wealth of their stockholders. This type of management is called the Shareholder Wealth Maximization (SWM) model. SWM is very popular in the U.S. On the other hand, there are people who may argue that a company's goal should also include its entire stakeholders including employees, creditors, suppliers, the local community, etc. This thinking is referred to as Corporate Wealth Maximization (CWM) model - which is prevalent in Japan and many European countries. In a paragraph or two outline your opinion on this issue. Specifically, explain which model leads to increased economic efficiency? Why?

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Solution Summary

In about 350 words, including one website reference, this solution compares the Shareholder Wealth Maximization (SWM) model with the Corporate Wealth Maximization (CWM) model to describe which one leads to greater economic efficiency.

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Help of the following source has been taken in framing this response.
Source: http://www.law.harvard.edu/programs/olin_center/corporate_governance/papers/No339.01.Roe.pdf

The shareholder wealth maximization is in conformity with a utilitarian, greatest-good-for the- greatest-number philosophy in a competitive world. It is accepted as an appropriate goal for publicly held corporations. The justification for this goal is that it is the price paid for strong capital markets and allocative efficiency.

In the long run, employees and other stakeholders (creditors, suppliers, the local community) are ...

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