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Why might organizing to maximize shareholder value be a good foundation for organizations?

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cookiefoo | Student, Undergraduate | Salutatorian

Posted May 3, 2012 at 1:38 AM via web

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Why might organizing to maximize shareholder value be a good foundation for organizations?

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belarafon | High School Teacher | (Level 2) Educator Emeritus

Posted May 3, 2012 at 3:10 AM (Answer #1)

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While opinions -- and success stories -- swing wildly in both directions on this topic, the theory of maximizing shareholder value as a major goal of organization is sound. Briefly, shareholders represent the value of investment in a company, and the more their shares are worth, the more they are likely to invest, to encourage others, and to promote their shares; as long as the shares go up or remain steady, the business is confident. Shareholders invest assuming that management will attempt to increase their investment.

Using this paradigm, an organizational structure that focuses on productive, efficient output will usually increase share value. A good organizational structure for this result requires open communication, flexible workloads, and varied skill-sets between employees to ensure that output remains constant. All these design aspects will help the share prices rise, satisfying and encouraging investors, and helping the company retain a net profit.

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