The Shareholder Value Maximization Proposition: Wishful Thinking or Realistic Operational Objective

Abstract

The aim of this paper is to contribute to a more critical understanding of the shareholder value maximization proposition. It seems that many take for granted the meaning of this proposition without realizing its inherent conceptual and undesirable problems. Consequently I hope to make a clarification of the meaning of the proposition with this paper and to bring it back to the discussion table especially in these times of global economic crisis. I argue that shareholder value is an institutionalized illusion and unachievable in real firms. I argue that managers, who think they are maximizing shareholder value, are making either satisficed profit, based on satisficed goals, or just any profit by chance. I argue that some managers and shareholders understand that maximizing shareholder value does not make economic sense; and therefore these managers make either satisficed profit, based on satisficed goals, or just any profit by chance, in their effort to satisfy all stakeholders of their firms. Notwithstanding these same managers say they are maximizing shareholder value in order to sound legitimate. I argue that what is feasible for managers is to create value (I will define this value later) for all stakeholders of their firms.