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J Bus Ethics (2015) 127:683694 DOI 10.1007/s10551-014-2070-6
Enlightened Shareholder Maximization: Is this Strategy Achievable?
Pamela E. Queen
Received: 16 September 2013 / Accepted: 15 January 2014 / Published online: 5 February 2014 Springer Science+Business Media Dordrecht 2014
Abstract The role of a corporation is often debated as a mutually exclusive choice between economic responsibility to shareholders and social responsibility to society. An evolving viewpoint embraces an integrated approach focused on long-term value creation for shareholders which benets other stakeholders. Maximizing long-term shareholder value as a corporate objective can be compatible with stakeholder theory when an enlightened shareholder maximization strategy is embraced. Firms implementing an enlightened shareholder maximization strategy are expected to make decisions and use resources which achieve long-term value-creating outcomes. However, critics of enlightened shareholder maximization as a corporate goal contend this strategy conicts with maximizing shareholder value. This study explores whether rms which embrace a balanced enlightened shareholder maximization strategy indeed create long-term value which does not sacrice shareholder wealth.
Keywords Enlightened shareholder wealth maximization Stakeholder theory Value-based
management
Introduction
The role of a corporation is often debated as a mutually exclusive choice between economic responsibility to shareholders and social responsibility to society. An evolving viewpoint among corporate managers embraces
an integrated shareholder maximization and stakeholder management approach motivated by long-term wealth creation for shareholders. Both investors and managers views are progressing from a solely economic responsibility of corporations to a broader social responsibility as a legitimate and expected role for business. Surveys of corporate executive attitudes toward social responsibility indicate that executives strongly assert in addition to making a prot, business should help to solve social problems whether or not business helps to create those problems and whether prots are realized (Holmes 1976; Carroll and Shabana 2010).
Shareholder theorists believe that corporate managers should spend funds in ways which are authorized by advantage rm owners because they provide capital to corporations and are due compensation. For proponents of shareholder theory, the only social responsibility of a business is to engage in transparent, free competition without deception or fraud with a goal of increasing rm prots which benets shareholders (Friedman 1970). In contrast, stakeholder theorists believe that corporations have a responsibility to shareholders as well as other stakeholders because business and society are...