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Maximizing Shareholder Wealth

Essay by   •  April 6, 2011  •  Essay  •  569 Words (3 Pages)  •  1,698 Views

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Even though the process of maximizing shareholder wealth is very complex, the goal itself is quite simple. The goal is and always will be to increase the value of the company to the extent that the shareholders can see the increased value in the stocks that they hold.

According to www.businessdictionary.com, maximizing shareholder wealth is the idea of putting the stock holder first, and making any and all financial decisions based on increasing the value of the company, for the stockholder.

When I think of the term wealth in my everyday life, money and finances are the first things to come to mind, however they aren't the only things. I think of being wealthy with love and stability, and key knowledge of the direction my family is going. It isn't always about the money, but it can be about respect, trust, or anything else that increases the value of my family. I think this also is relevant in maximizing shareholder wealth which our textbook (p.13) calls a "Valuation Approach". An investor values more than money within a company, just like he values more than money in his personal life. Value in a company can mean anything from respecting the CEO as a decision maker, to believing the company has great empathy for the environment.

I truly believe that maximizing shareholder wealth through maximizing the value of the company means being a respectable company that makes good financial business decisions, continuously improves, and makes overall good decisions that affect the share holders in a positive way. An increase in money is number one, but it isn't the only thing and more money can't just happen if there is nothing else of value going on within a company.

A corporation most certainly has other stakeholders besides shareholders. I can easily see this by looking at the corporation I work for (AZZ|Central Electric.) The community around us is a big stakeholder because of the taxes that we pay and pump back into the community. The vendors who we buy all of our material from have a huge stake in the success of our company, along with all of the employees who earn their living, working within this corporation. This isn't specific to this company; all corporations have these same stakeholders, and often many more.

Even though a corporation cares about the employees, community, and vendors, those aren't the people who own the company. The shareholder is always going to be number one and come first when it comes to who will benefit and get the most value out of the financial decisions made by a corporation. When viewing corporate responsibility (Title III) of The Sarbanes-Oxley Act of 2002 on www.sox-online.com, it makes it very clear who the corporation has the most responsibility to in Sec.302. Sec.302 covers "Corporate responsibility for financial reports." The stock market gets information and values stocks according to these financial

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