Is Shareholder Wealth Maximization a Worldwide

Goal?

Most academics agree that shareholder wealth maximization should be a firm’s

primary goal, at least in the United States; however, it’s not clear that people really
know how to implement it. Pricewaterhouse- Coopers (PWC), a global consulting
firm, conducted a survey of 82 Singapore companies to test their understanding
and implementation of shareholder value concepts. Ninety percent of the
respondents said their firm’s primary goal was to enhance shareholder value, but
only 44 percent had taken steps to achieve this goal. Moreover, almost half of the
respondents who had shareholder value programs in place said they were
dissatisfied with the results achieved thus far. Even so, respondents who focused
on shareholder value were more likely to believe that their stock was fairly valued
than those with other focuses, and 50 percent of those without a specific program
said they wanted to learn more and would probably adopt one eventually.

The study found that firms measure performance primarily with accounting-based
measures such as the returns on assets, on equity, or on invested capital. These
measures are easy to understand and thus to implement, even though they might
not be the best conceptually. Compensation was tied to shareholder value, but only
for mid-level managers and above.

It is unclear how closely these results correspond to U.S. firms, but firms from the
United States and Singapore would certainly agree on one thing: It is easier to set
the goal of shareholder wealth maximization than it is to figure out how to achieve
it.

Source: Kalpana Rashiwala, “Low Adoption of Shareholder Value Concepts Here,” The Business Times
(Singapore), February 14, 2002.