May–June 2004 | Anant K. Sundaram, Andrew C. Inkpen
The article revisits the debate on the corporate objective, particularly the goal of shareholder value maximization, in light of the 2001-2002 stock market turmoil and corporate scandals. It traces the evolution of this debate from the late 19th century, examining its implications for corporate law and practice in the United States. The authors argue that shareholder value maximization should remain the preferred objective function for corporations because it is pro-stakeholder, creates appropriate incentives for entrepreneurial risk-taking, simplifies governance, and provides better protection for stakeholders in legal disputes. They address critiques of the shareholder value maximization view, including concerns about distributional implications and the potential for value transfer from other stakeholders. Despite these critiques, the authors conclude that the issues raised are not unique to this objective and that the benefits of shareholder value maximization outweigh the drawbacks.The article revisits the debate on the corporate objective, particularly the goal of shareholder value maximization, in light of the 2001-2002 stock market turmoil and corporate scandals. It traces the evolution of this debate from the late 19th century, examining its implications for corporate law and practice in the United States. The authors argue that shareholder value maximization should remain the preferred objective function for corporations because it is pro-stakeholder, creates appropriate incentives for entrepreneurial risk-taking, simplifies governance, and provides better protection for stakeholders in legal disputes. They address critiques of the shareholder value maximization view, including concerns about distributional implications and the potential for value transfer from other stakeholders. Despite these critiques, the authors conclude that the issues raised are not unique to this objective and that the benefits of shareholder value maximization outweigh the drawbacks.