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Should the primary objective of management be to increase the wealth of shareholders and owners - Essay Example

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Milton Friedman (1970) categorically claimed that the primary responsibility of managers is to protect the fiduciary gain of the shareholders/owners of the company that they are servicing. The moment managers veer away from this ethos, they commit an immoral act…
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Should the primary objective of management be to increase the wealth of shareholders and owners
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"Should the primary objective of management be to increase the wealth of shareholders and owners"

Download file to see previous pages They have failed to fulfill their duty and have wasted the money and confidence of the people they are supposed to be protecting - the shareholders. In this regard, Friedman (1970) suggested that if managers want to fulfill their acts of charity, it should be done within their own personal capacities and not within the purview of their functions as managers of corporations. Friedman’s view has been highly cited and criticized (Wilcke 2004). In effect, this position has been reaffirmed, denied and valued as incomplete. Jensen (2002) asserts the notion that managers cannot fulfill the interest of various groups claiming to be affected by the actions of the organizations. The multifarious nature of the many stakeholders of the organization highlights the impossibility of responding to it. As such, Jensen (2002) maintains that the primary obligation of managers is to strengthen the fiduciary interest of shareholders. On the other hand, Tencati and Zolsnai (2009) ascertain that the responsibility of managers is not only towards the shareholders, but also to other identified stakeholders. This is because organizations are social actors. Their actions affect and influence the dynamics and life of people, communities and the whole society. As such, they cannot renege from their responsibility towards others (Tencati and Zolsnai 2009). Meanwhile, there are scholars who are also claiming that the responsibility of managers is striking the balance among competing interests in the corporation (Hemingway 2002). In the face of the contradicting positions pertinent to the primary obligations of the manager, this study will look into the question should the primary objective of managers be to increase the wealth of shareholders and owners? The complexity of the issue and the importance of the question are affirmed by the continuing debate relevant to the primary objective of managers. In this regard, this paper intends to show that there is no dichotomy between pursuing the fiduciary gains of the shareholders and fulfilling stakeholders’ interests. In addition, selecting one over the other is a misappropriation of the current business environment. Moreover, the paper intends to identify the factors that contribute to the apparent ambiguity of the issue. Finally, this paper aims to provide possible ways wherein the ambiguity of the issue may be resolved. 2. The Position In this paper, the researcher will argue that the primary objective of managers is to increase the wealth of shareholders and owners and at the same time fulfill the interests of the identified stakeholders of the company. This claim denies the validity of the idea that there is a dichotomy between shareholders’ interests and stakeholders’ interests. Thus, the manager is in a dilemma and is constrained in choosing one over the other. In other words, profit and corporate social responsibility, which connotes the idea that organization, are responsible to the economic, physical and human resources that they employ as they steer the organization towards success (Lantos 2002), should be jointly pursued as primary objectives of management. It reaffirms the notion that (1) in view of the good of the company, both shareholders’ interests and stakeholders’ interests are coeval in importance. (2) It holds that limiting the objective of managers to increasing the wealth of shareholders and owners is a false dilemma. (3) Current business environment demands that both shareholders and stakeholders interest be fulfilled. When Friedman (1970) affirms the primacy of shareholders’ interests as the primary objective of the manager. It simply reaffirmed what has been long been integrated in business – ...Download file to see next pagesRead More
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