Shareholders and Managers

Diverse Objectives of Shareholders and Managers

Introduction

There might be different objective that firms want to achieve. But, the main objective of the companies is related to the maximization of the shareholder wealth. Therefore, theory suggests that firms shall set their goals which are inclined with the shareholders value as well as wealth maximization as they are also the owner of the company. The statement that while shareholders and managers will have different objectives, the extent to which managers will have discretion to pursue actions that are not consistent with shareholder wealth maximization is severely limited will be the main focus of this paper.

Discussion

Shareholders and managers have their own goals for a business. Ideally, the goals of management are the same as the goals set forward by the shareholders through the board. Unfortunately, this is not always the case. As a business owner must recognize that the goals set by you and other shareholders may differ from those of their managers, and recognizing this allows you to make changes and bring their goals into alignment. Generally, shareholders have one main objective: to increase the value of the company1.

This objective can be manifested in a variety of measures, such as stock price, profitability or market share. Individual shareholders do not set goals, however, are ultimately set by the directors elected by the shareholders. If you are a shareholder of your company, you can dictate these goals, but otherwise their influence is equal to its ownership interest. Managers have specific objectives set for them, such as sales levels, customer satisfaction and increased market share. In addition, managers have their own personal goals. These may include financial goals, career goals or just ego-based goals. The objectives set for the administrator may or may not be consistent with personal goals administrator. The principal-agent problem can occur when a principal hires an agent on your behalf. When shareholders that select managers are expected to act as agents for them and try to achieve the objectives of the shareholders. This is compounded by the fact that shareholders can not directly supervise its managers, the creation of asymmetric information, where shareholders do not know exactly what the manager is doing or is in line with its objectives3.

For example, a manager can achieve their own goals by awarding a contract to a company that has an interest in, instead of the most qualified firm. Shareholders should be careful to align their own objectives with their managers. One of the easiest ways to do this is to offer managers a partial portion in shares of the company; the shareholders who have an interest in the company succeed. In addition, shareholders may establish specific goals and provide incentives to achieve the objectives. In addition, shareholders can monitor the managers more closely, such as hiring outside consultants to evaluate the work done by administrators.

Such as the case of Mark and Spenser, the company CEO was working for shareholders as after the loss made by the company, rather ...