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In preparation for this assignment, read the following article:
Denning, S 2015, 'Salesforce CEO slams ‘The world’s dumbest idea’: maximizing shareholder value', Forbes,
The goal of financial management in a for-profit organisation is to make decisions that increase the value of the shares or increase the market value of the equity. However, this goal was criticised by above article.
Financial Management is the key to running a successful business. In a for profit organization, we have always known that the goal is to take decisions that increase shareholder value and maximize profits. Running a business is challenging as well as satisfying. (Anon., 2016)
The Forbes article 'Salesforce CEO slams ‘The world’s dumbest idea’: maximizing shareholder value' criticizes the whole concept of shareholder value maximization. While reflecting upon the topic and the arguments presented in the article, we come across a key point: The difference between shareholder and stakeholder. The article states that businesses must have a dual focus of greater good and driving stakeholder value. A stakeholder is anyone and everyone connected to the business including employees and customers, without which the business is only a concept. Stakeholders add life to the idea and give it shape and future. Businesses should be built on the pillars of greater good, trust, transparency and value creation. In the pursuit of making billions, at times businesses forget that some acts may harm the environment or a community. While these businesses may make some good money but in the long run, they will be under scrutiny and penalized for their acts.
Take for example plastic factories. They mint money at the expense of the environment. Gallons and gallons of effluents are let out into rivers and the air and tonnes of plastic waste which is non- recyclable clogs our water bodies and drains each year. This harms aquatic life and deteriorates the quality of the environment we live in. Who is to be blamed? Those who buy these products? Those who manufacture them? Or the goal of shareholder value maximization?
We see another example of cigarette manufacturers and cigarette factories. The world knows that smoking is injurious to health. The businesses that manufacture and sell these products know it well too. However, putting human life at stake, it is the profit that matters to such entities. We often ignore the unfavourable work conditions in which our manual labourers work. Occupational hazards such as asbestos dust, harmful chemicals, lack of safety equipment etc. are often ignored in the pursuit of maximising profits.