3 discussion responses with references for each

3 responses with references

Original
info: discuss the topic of maximizing shareholder wealth. This topic has been
researched and studied for many years, with mixed results. For example, Irving
Fisher, a prominent American economist, argued that maximizing shareholders’
wealth should be management’s primary goal (Cardao-Pito, 2016). Conversely,
Sollars and Tuluca (2016) suggested that shareholders should only be rewarded
with returns that are “commensurate with the risk they take” (p.
203).

Watch this
video on Social
Responsibility Perspective: The Stakeholder and Shareholder Approach (Alanis
Business Academy, 2014). After viewing the video, briefly share your thoughts
about shareholder wealth maximization. Then, explain the advantages and
disadvantages of wealth maximization from the perspective of a company’s chief
financial officer. Include the effect on company stakeholders, both internal
(managers, employees) and external (suppliers, shareholders).

1.In the video, Friedman was strongly
against practicing social responsibility (Alanis Business Academy, 2014). Based
on his assessment, shareholders are the true owners of the corporation, despite
not being there to make the day-to-day decisions, which are left up to the
board members. This model emphasizes maximizing the shareholder’s profit above
all else, and instead of a corporation practicing social responsibility and
donating some of the profits to charity, it creates more money for the
shareholder to donate on an individual level.

The
stakeholder model, a greater emphasis is placed on where the profits ultimately
go once earned (Carlson, 2022). The stakeholder model is more concerned with
public perception of the company, in hopes that they can reach a larger
customer base by having a positive social image (Alanis, 2014). shareholder vs
stakeholder approach is a top that should be closely examined by a CFO.

I
believe that wealth maximization should take precedence over all else in a
company. By maximizing shareholder profit, I believe it makes the company more
valuable and attracts new investors and keeps share prices and valuations high.
Depending on the company, I don’t believe public perception regarding social
responsibility (i.e. what a company ultimately does with their money) is nearly
as big a deal as some businesses make it out to be. However, I do see the other
perspective where companies want to have a strong public image, hoping to
attract more customers and maximize revenue that way.

2. In
corporate finance, the subject of maximizing shareholder wealth is still up for
discussion. Irving Fisher’s claim that this objective should be management’s
top priority is consistent with conventional wisdom, stressing the significance
of giving shareholder interests top priority when making decisions
(Cardao-Pito, 2017). On the other hand, Sollars and Tuluca (2018) offer a
compelling counterargument, arguing in favor of rewards that are proportionate
to the risk assumed by shareholders. This contradiction captures a more general
debate in the area.

A crucial
component—the consideration of stakeholders other than shareholders in business
decision-making—was addressed in the Alanis Business Academy film (2014) on the
stakeholder and shareholder approach. Maximizing shareholder wealth can attract
investors and increase stock value, but it sometimes ignores the larger
ecosystem of stakeholders.

From a Chief
Financial Officer’s (CFO) perspective, wealth maximization has inherent
benefits. It gives financial initiatives a concrete, measurable goal that
matches investor expectations and boosts market confidence. But this strategy
could unintentionally encourage short-termism, jeopardizing sustainability over
the long run and disregarding the interests of other stakeholders.

An internal
pursuit of shareholder wealth may put managers and staff under excessive
pressure to fulfill strict financial targets, which could have a negative
impact on organizational culture. Suppliers might face more pressure from
outside sources to reduce costs, which could strain their relationships and
have an impact on their own viability.

In
conclusion, while shareholder wealth maximization is a fundamental tenet in
corporate finance, a balanced approach that considers the interests of diverse
stakeholders is indispensable for sustainable and ethical business practices. I
look forward to our discussions in this course.

3. Prior
to watching the video, my initial thoughts on shareholder wealth maximization
are that it should be the primary goal of a business, granted that the business
does not cut corners in meeting its other obligations. For example, a
company who is only concerned with maximizing shareholder wealth but does not
consider maximizing customer satisfaction will not have a sustainable business
model for very long. This also applies to employee satisfaction,
complying with laws and regulations, as well as several other factors that are
built into a successful business.

After
watching the video, it seems like my above comments are in direct agreement
with the stakeholder model discussed in Social Responsibility
Perspective: The Stakeholder and Shareholder Approach(Alanis
Business Academy, 2014). Profitability is, of course, the main goal of
most if not all corporations, but that does not mean other goals, obligations,
and ethical concerns should fall to the wayside. Shareholder wealth
maximization has both benefits and drawbacks to consider from the perspective
of the chief financial officer. As discussed in the video, corporate
officers are appointed to optimize business potential, and, in the eyes of the
shareholders, that means make as much money as possible. The key benefit
here would be that the maximization of shareholder wealth makes the
shareholders happy, thereby securing the corporate officers’ position at the
company. However, without consideration towards the factors referenced
above, as well as in the video, the business’s reputation, profitability, and
existence can take a turn for the worse in the pursuit of profit.
Especially in the era that we live in today, social responsibilities are at the
forefront of many peoples’ minds, meaning that the corporate officers have a
lot more on their plate to balance than solely profitability. A business
only concerned with profit can have an impact on the company’s stakeholders
outside of their actual shareholders. It is important for a company to
ensure the satisfaction of their employees and suppliers so that the company
does not experience major turnover in the way they do business. For
example, withholding a raise/bonus from a key employee who deserves one may
improve the company’s profitability, but it also exposes the company to the
risk of losing that key individual. In terms of a company’s suppliers,
holding out on satisfying an account payable until the very end can show strong
cash positions, but may irritate the supplier and lead the supplier to not want
to do business with the company anymore.

Being a
corporate officer is no easy task, and I think it is safe to say that most
companies nowadays subscribe to the stakeholder method of conducting
business. Corporate officers have a lot of decisions and considerations
on the day-to-day basis, and at the end of the day must make profitable
decisions for their shareholders, while maintaining a strong reputation with
their other stakeholders.