QUESTION After reading the article into the idea whether shareholder wealth maximization is the be-all and end-all for a company (as taught in formal finance courses), provide your own informed view on the matter what should be the ideal way forward.
You have read in the unit material that wealth maximization of shareholders should be the prime motive of a company’s finance manager. The raging pandemic since the end of 2019 has brought this argument into as sharp a focus as never before. On the one hand is the view that unless shareholders are compensated for the risk taken and resources committed by them, there will be no impetus for business activity and resources will no more be channelized productively. In absence of value maximization, business motivation will be dampened and that will have wider and detrimental repercussions for the society and world at large. The contrary view is that corporate houses cannot be seen as entities that are immune from social, ethical and environmental concerns and instead of only the shareholders, a stakeholder welfare approach is more justified.
A recent article in theconversation.com tackles this issue head on by positing how Pfizer is hoping to earn big through the sale of its COVID-19 vaccine. Likewise, Moderna is likely to post its first ever profit this year. The critics are unforgiving, especially when companies like Astrazeneca and J&J are brought in the picture, who committed to sell their vaccines on a non-profit basis. The counterargument is that pharma companies have a commercial as well as social responsibility to utilize their resources and models to provide life-saving vaccines to the world, which is a stance supported by law as well. The article raises a pertinent question when it asks what would the world do if both Pfizer and Moderna backed out and decided not to work on a COVID-19 vaccine for cost and reputation related reasons. For sure, the financial costs involved in developing a vaccine at a “warp” speed are prohibiting. And what if they failed in their respective ventures? Their
QUESTION
After reading the article into the idea whether shareholder wealth maximization is the be-all and end-all for a company (as taught in formal finance courses), provide your own informed view on the matter what should be the ideal way forward.
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