The Corporate Objective Revisited
Thunderbird School of Management Working Paper
40 Pages Posted: 10 Dec 2001
Date Written: October 2001
In this we paper we explain why maximizing shareholder value should be the sole objective function for governing the corporation and why that objective function is, on balance, good for all stakeholders. Shareholder value maximization is the ideal corporate goal because it is the best among all available alternatives for governing the corporation and, therefore, one that makes the most sense for managers formulating and implementing strategy. We construct a set of five normative arguments for the shareholder value maximization view. To support our position we trace the origins of the corporate governance debate from the late nineteenth century and its resulting implications for accepted corporate law and practice of corporate governance in the United States. We examine the debate as reflected in the shareholder/stakeholder arguments in the management and strategy literatures, and the contractarian/communitarian arguments as reflected in the legal literature.
Keywords: Corporate objective, corporate governance, shareholder value maximization, strategy formulation, stakeholders
JEL Classification: L2, G3, M1
Suggested Citation: Suggested Citation