Is Shareholder Wealth Maximization Immoral?

Abstract

For those educated in modern business schools, the justification for decisions made by financial professionals in business organizations has been supplied by financial economic theory. Broadly, this theory posits that the ultimate objective of a business organization is to maximize its market value (often referred to as maximizing shareholder wealth). This objective is, in turn, justified (in a theory often termed “the invisible hand”) by the premise that such activity undertaken competitively, within the law, by individual firms will lead to maximal social welfare. This view of the ultimate aims of corporate activity has come under increased scrutiny—and, indeed, challenge—by a growing body of thought that can be loosely labeled “business ethics theory.” As business ethics theory filters into the financial professional's milieu—through, for example, corporate creeds—some confusion is inevitable. This article clears the confusion by evaluating the objective of shareholder wealth maximization as a moral justification for behavior in business.

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