The Advantages of the Maximization of Shareholder Wealth
Maximizing shareholder wealth has long been a key goal for a typical for-profit business. The idea behind this approach is that all decisions and company activities should align with the objective of making maximum profit and generating optimum growth in company share price. Despite some criticisms from social and environmental groups, maximizing shareholder wealth provides some key benefits to a business.
The most overt advantage of a wealth maximization goal is that you make money for all owners of the business. Naturally, if you start a business on your own or with other investors, you'd like to make as much money as you can. If all of your business decisions connect with this end in mind, you could make enough money on the company's income or upon sale of the business to become wealthy.
Whatever your goal, a clear focus on an overall strategic objective helps you create consistency in business decisions. If your company operates with the primary purpose of maximizing wealth, your decisions likely will relate to this objective consistently. In weighing purchases of supplies or inventory, for instance, you would select a provider and goods that offer you the highest revenue with the lowest investment cost. Any decision you make weighs both cost and revenue-generation factors first and foremost.
Unlike general goals like "becoming an industry leader" or "helping to better the world," maximizing shareholder wealth is a very objective, unemotional business goal. You typically make decisions after crunching numbers, weighing rewards and risks and analyzing any available data. With more subjective or emotional objectives, you have greater potential to make emotional or impulsive decisions that could lead to high costs and poor business results.
While these advantages of maximizing wealth are hard to argue against, you have to recognize potential drawbacks and criticisms. If you get overly wrapped up in the financial stakes of your decisions, it can take away from any intangible or altruistic goals you have, such as bettering your community. Additionally, executing decisions that only weigh bottom line results can attract criticisms from community activists that expect you to contribute to the community, or from environmental watch groups that expect you to operate with green-friendly policies.