Maximizing Shareholder Value

926 WordsFeb 26, 20064 Pages
Maximizing Shareholder Value: The Role of the Financial Manager Today 's business world shows a huge diversification in the shareholders of one company. In most countries, each investor only holds a very small fraction of issued shares by one corporation. This includes also the senior management. Determining the objectives of the firm is not necessarily a straightforward task because the typical firm will have many types of participants. Among these participants are shareholders, creditors, managers, employees, customers, suppliers, governments and a variety of special interest groups. The objectives of these different types of participants are likely to be in conflict. But the main focus and objective of every firm and its…show more content…
The employee 's view The agency problem may also arise between top management and junior management and lower level employees. As is the case between top management and shareholders, employees may seek goals that might differ from the shareholder 's goals and even with the management goals. For example, an employee may want to follow his career path in another department and puts pressure to move from his current position. That may be in conflict with the interests of his current manager to keep him in that position for a longer period because he will have a hard time finding a replacement immediately. Another example could be if the employee seeks the benefit of being a top manager but on his way of doing so he might align his goals towards management goals instead of maximizing shareholder 's value. This problem could also be solved by close monitoring and by compensation packages tied to share performance. Conclusions The expected goal of the financial manager should be the maximization of shareholder 's value. Sometimes their actual goal may differ from the expected goal. That is when the agency problem appears since management has different interests than shareholders. In order to correct that, it is possible to tie managements compensation to that of shareholders in order for them to align their interests. References
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