Enlightened Shareholder Value: Is It the New Modus Operandi for Modern Companies?

Abstract

The present financial crisis has led to more and more calls for changes in the way modern companies operate. The need for increased scrutiny of corporate governance, greater corporate accountability and monitoring has been repeatedly highlighted. As a result, a new trend has been developed the last few years, according to which business success and shareholder value cannot be achieved solely through maximizing short-term profits, but instead through market-oriented yet responsible behavior. Failure to effectively manage both the financial and non-financial aspects of corporate responsibility places shareholder value at risk. However, it is extremely difficult to achieve total transformation of the objectives of the company or the market system, thus the right approach is not to shift the focus away from shareholder value, but to reaffirm shareholder value as the central focus of corporate responsibility. The rules of the corporate game have changed and corporate boards are required to change the existing corporate mentality, in order to create companies, which are sustainable and economically, ethically and socially responsible. The enlightened shareholder value theory represents an attempt to strike a balance between shareholders’ primacy and corporate stakeholders’ interests. Effective corporate social responsibility management is not incompatible with shareholder value and having wider interests can be the key to long-term financial performance. Companies should not be seen only as vehicles for profit maximization, but as having a wider social role. The companies, which are willing to change their mentality and adopt a long-term perspective, will be rewarded with sustainability and efficiency.