Management Objectives – What Is the Goal of Management?
Management Objectives – What Is the Goal of Management?
Management Objectives: What is the Goal of Management?
Shareholder Wealth Maximization vs. Corporate Wealth Maximization
Shareholder Wealth Maximization
(U.S., U.K., Canada, Australia, and New Zealand)
Shareholder wealth is the value of the shareholders investment in the company
Profit oriented – maximize return for a given level of risk
Risk is defined as the added risk that a firms shares bring to a diversified portfolio. (unsystematic risk)
Systematic risk – the risk of the overall market. This risk is “undiversifiable.”
One-share-one-vote
Corporate Wealth Maximization
(Continental European and Japan)
Corporate wealth includes: technical, marketing, and human resources
Stakeholder oriented (stakeholders include: management, labor, the local community, suppliers, creditors, and the government)
Total risk – operating and financial risk is important.
Dual classes of voting shares and other anti-takeover provisions
Primary stakeholders – individuals or entities that directly influence the development and implementation of the corporate strategy.
Shareholder wealth maximization is becoming increasingly more popular:
International capital favors this model
MNEs increasingly dominate their industry segments.
Q: What do shareholders want?
A: Shareholders want: transparency, honesty, clearly defined objectives, and measurable results.
Q: What destroys value?
Strategic: Customer demand shortfalls, competitive pressure, M&A integration problems, misaligned products, customer pricing pressure, loss of a key customer, regulatory problems, R&D delays, supplier problems
Hazards: Lawsuits and natural disasters
Operational: cost overruns, accounting irregularities, management ineffectiveness, supply chain issues
Financial: Foreign macroeconomic issues, high input commodity prices, interest rate fluctuations
Top 5 Companies in Europe
Royal Dutch/Shell Group
DaimlerChrysler