Maximizing shareholder wealth has to do with maximizing the value of a public company's common stock. A "common stock" of a company can be viewed at the website of the National Association of Securities and Dealers Automated Quotation-also known as NASAQ.com
The Bottom Line
Maximizing shareholder wealth is often the most important goal of a company; however, the bottom line is that profit is required to increase the dividends paid out with each common stock that constitutes shareholder wealth. Thus, an effective manager will be more concerned with the primary means of profit-making within a company. For example, Coca-Cola makes money by maintaining a powerful brand name and manufacturing an enjoyable consumer product. To maximize shareholder wealth, Coca-Cola must first maintain the status of its brand and product.
Providing stock options for managers is an excellent way to motivate managers to maximize shareholder wealth. Simply stated, it is an additional incentive, on top of a standard salary and/or even a commission, to get the most efficient and effective work-time out of one's employees.
Initial Public Offering
Initial Public Offerings (IPOs) are held to sell common stock to the public. Before common stock is sold, the company should ensure that it can thrive without common stock. This ensures that the company is dependent on stock to maximize profit, but not to make profit in general. A company that depends on common stock to make profit in general may not be sustainable or may be subject to a corporate buyout in the future.
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