INSIGHT

I agree with Steve Denning’s standpoint on Shareholder’s Value Maximization. In theory, the
nature of the company’s existence is profit maximization which is definitely true. However,
along with this notion, highlights the prominent role of a firm’s management to act and make
decisions in accordance with the best interest of their shareholders. In other words,
corporations should be run primarily for the purpose of maximizing the firm’s value in order to
please shareholders. This old concept was refuted by the BRT and after weighing both sides of
the case, I fully accepted their redefinition of business’ purpose.
First, Denning’s statement “shareholder value is the result, not the goal of a corporation” is
totally agreeable. I believe that solely focusing on shareholder value maximization will definitely
compromise other stakeholder’s value i.e. customer, employees, suppliers and other investors.
This is a serious risk that a company should reckon since these variables greatly bring the
success of the whole organization. If the firm exclusively prioritize the value of shareholders
and ostracize other stakeholders, this will eventually lead to the downfall of the company.
There is truth in the saying that employees are as important and valuable as customers so if a
company treats their employees as something fungible, this will result to poor employee
productivity. Moreover, if a company has weak manpower and poor management this will
reflect on their overall performance as a firm which will eventually lead to failure in achieving
their goal – to prosper in the business industry. Therefrom, to put things in proper perspective,
a firm must establish a sense of balance in running an enterprise and ensure that they are not
only maximizing the value of one variable (shareholder) but also the other variables (company’s
other stakeholders) in order to survive in the long run.
Next, the principle of Creating Value for Customers. It is very true that customers are the
lifeblood of the business because without them a firm will stop earning revenue and cease to
operate. History shows that firms who extremely deliver continuous value to customers grow
successfully compared to firms doing the opposite. Hence, maximizing employee-value equates
maximizing customer-value, they go hand in hand. One great customer service can only be
pulled off by a great employee and a customer’s satisfaction is a ticket towards a greater
profitability.
In a nutshell, the idea of shareholder value maximization is a thing in the past. Why? It is
egocentric and it doesn’t promote goal congruence. A firm’s goal is to create its own value
through profit maximization. Yesterday, companies do it to feed the stomach of the
shareholders but today, a company with a vision knows that the purpose of maximizing wealth
is to nourish and sustain every individuals who are giving life to the corporation. Building long-
term firm-value comes from making money and providing better services out of that money.