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 shareholder's investment in the company

? Profit oriented – maximize return for a given level of risk

Risk is defined as the added risk that a firm's 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:

1. International capital favors this model

2. 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?

A:

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

1. BP

2. Royal Dutch/Shell Group

3. DaimlerChrysler