Practice the balance between shareholder wealth maximization and concern for all stakeholders

Shareholders are those who purchase the shares of the company/business and thus owns the company/business. They can be individuals, businesses and even institutions.

Stakeholder can be anyone who has an interest in the performance of the company. They can be owners/shareholders, employees of the company, bondholders/creditors, customers or suppliers/vendors.

So, a shareholder is always a stakeholder in a company, but a stakeholder may not always be shareholder.

The organization is consistently under predicament with regards to whom to give higher importance whether to shareholder’s wealth maximization or to stakeholder welfare as a corporate goal. The shareholders being the owners/investors may want the company's manager to focus on increasing the profits, so that their wealth can be increased. On the other hand, stakeholders want company's manager to incur expenditure that increases stakeholder's value but does not necessarily mean addition to profitability for shareholders.

However because of change in environment (and many scam cases), companies have now started treating 'increasing stakeholder value' as a part of corporate social responsibilities (CSR). But since corporations have been seen doing frauds under the disguise of stakeholder value creation, there is more confusion on which aspect to be given higher priority. Numerous organizations now try to balance the two by Increasing the shareholder value in such a way that it does not hamper any stakeholder rights and they try to do that by executing business activities in a legal way.

On the other point, shareholder's wealth maximisation as a sole objective is not even possible without considering the stakeholders value creation. The management is able to serve the shareholder’s wealth maximisation objective with the help of other stakeholders only. If management is not going to think about stakeholder's benefit as well, then stakeholder's would ultimately lose the interest in the organization and they may change their ways. Without welfare of the stakeholders, shareholder’s wealth creation is not possible.