Why should shareholder wealth maximazation (Friedman's Theory 1970's) should also encompass a broader approach including all...
Why should shareholder wealth maximazation (Friedman's Theory 1970's) should also encompass a broader approach including all stakeholders (customers, employees, suppliers, etc)?
Homework Answers
The reason why shareholder wealth maximization should also encompass a broader approach including all stakeholders is that a company has various stakeholders and shareholders are just one of the stakeholders in a company. A company has different other stakeholders like employees, customers, vendors etc. and each of these stakeholder play a significant role in the commercial and operational success of a company.
A company relies on its customers for sales, on its employees for productivity and efficiency, on its vendors for supplying quality parts in timely manner. All these stakeholders are equally important and hence a company has to protect as well as further the interests of these stakeholders. Thus the managers of a company should not only focus on wealth maximization of shareholders but should also consider interests of all other stakeholders as well.
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