Introduction
Many scholars and managers indeed endorsed the idea of SWM i.e. the primary aim of any business is to earn money for its owners. This purpose of corporations is being justified by them on the basis that SWM also maximizes social welfare. In the earlier era, it has been thought as true and thus implemented as one of the basic foundations of any corporation’s objectives. However, things are changing now. In the current changing era, the SWM primacy is not found as appropriate. There are analysts who are in favor of this theory and then there are also those who are against this concept. Both points of views will be discussed in depth (Grossman, 2005).
Dominance of SWM in Early Eras
It is indeed true that in the past eras, the dominant normative mandate for the managers primarily in the US, corporations has been the maximization of the wealth of its shareholders. It is done by maximizing the profits of the company. It is also true that this trend strengthened with the passage of time. This viewpoint has been the viewpoint of the elite scholars of that time, and of the winning Nobel Prize winners and of the most respected corporate (Smith and Ronnegard, 2016).
Over the past few years, this concept that managers are liable to the constituents of the corporation in addition to the shareholders has been quite popular among the advocates of the corporate social responsibility. The dominant concept that has still been implemented is that in favor of the investors of the Wall Street. However, in Europe, there has been seen that the corporations do not regard the shareholder wealth as the sole objective of the firm, and as one of the many objectives (Watson and Head, 2016).
Reason for Change / Consequences of SWM
The changing of the scholars, economists, and analysts away from the SWM concept has not been without reason. If this concept has been providing good outcomes, the critique surrounding this model would not have been worthwhile. The cause of the economic problems has been significantly complex, still, the incentive granted by the SWM has been evident. The emergence of the subprime mortgage “bubble” was in fact associated with the desire of the lenders of the mortgage to make profit on the loans, and with the desire of the institutions to fulfill the rising demand of the collateralized mortgages, and with the willingness of the rating firms like S&P fir high rates against the high payment. The parties involved in the whole process were affirmative of the process because of their aim of increasing their profit regardless of the creditworthiness of the owner’s of the homes (Jones and Felps, 2013).
It is also apparent in the various cost-cutting strategies being taken in order to benefit the shareholders at the cost of the employees, who are another stakeholder. It is evident in the strategy of the forms to look for low labor cost areas for the benefit of the higher profits, however, this result in lower standard employment in these areas, and lower incomes for the lower and middle class of these areas which may result on long-term negative effects. As a result of the following of the SWM for two centuries, it is evident that the middle class has shrunk substantially.
Shaping of Corporate Objectives – Agency Theory
Agency theory addresses the problem areas arising from the differences in the goals of the agents and principals. It is true that there are differences in the goals set by the shareholders and the company executives. This theory takes into account the situation, which may be due to lack of information principals may get against a decision which is not profitable in short-term and beneficial in the long run. Moreover, the executives and the principals do not share the same level of risk, as all the investments are made by the owners, while decisions are taken by the executives (Bamberg and Spremann, 2012).
The corporate objectives of a company are shaped taking into consideration the agency theory. The corporations make their objectives focusing on the maximization of the shareholder wealth serving the principal of the company.
Corporate Objectives of Listed Companies
Microsoft Corporation
Microsoft has been ranked as the number one company by Forbes, which has the best corporate social responsibility initiatives (Forbes.com, 2017). The mission statement of the company Microsoft is:
Mission Statement of Microsoft
“Our mission is to empower every person and every organization on the planet to achieve more.”
The first component of the corporate mission shows that the company products worth for the customers i.e. empowers them. The other component of the mission statement signals the target market of the company. The third component again shows the benefit to the customers by using the technology of Microsoft. The company is focused on providing the best services to the people. The objective of the company also highlights the part of corporate social responsibility. It includes “building a sustainable future.”
“Our goals are to minimize the impact of our operations and products, and to foster responsible environmental leadership.”
The company works on being socially responsible about its corporate activities. The company’s corporate social responsibility report shows its achievements in the areas of energy goals (hydro, solar, and wind energy), customer privacy goals, making suppliers accountable, donating about $1 billion in public cloud computing for nonprofits in three years (Microsoft.com, 2016).
Intel Corporation
The mission statement and objective of another listed company “Intel Corporation” is also shown:
Mission Statement of Intel
“Utilize the power of Moore’s Law to bring smart, connected devices to every person on earth. (Intel.com, 2016)”
The Moore’s Law defines the strategy of the company. The Moore laws state that the number of transistors in circuit chips doubles every two years. It is a simple guide to the product development. The second part shows the product of the company and the third part shows the target market of the company. As per this mission, the company seems to be pursuing the increase in profit through product development, and increased market. However, the company has been active in making energy proficient products for reducing their environmental footprint. Moreover, the company also actively focuses on improving its corporate responsibility in the supply chain (Intel.com, 2017).
Recommendations
Recommendations have been given in many studies, and one of it is to accept the dominant corporate objective of SWM and try to restructure the arrangements of institutions surrounding it in order to improve the system. The Sherman Antitrust Act and the Federal Trade Commission have been used to limit any extreme deviations from the competitive markets. The numerous disclosure rules by the SECP have also aided in promoting of efficient markets with more information (Jones and Felps, 2013).
Conclusion
It is concluded that the idea of managerial capitalism has been followed in the past two centuries. Studies have shown that the US Corporation’s objectives were identified as being focused on the maximization of the shareholder wealth. There have been some macro-level economic problems even with the aggressive upward trend in the wealth. The inequality is the distribution of the wealth has been more in the US. Therefore, SWM is now not being considered as the sole objective of a company. The corporate objectives of two companies, i.e. Microsoft and Intel Co are shown, reflecting the agency theory and the CSR initiatives.
References
Bamberg, G. and Spremann, K. (2012) Agency Theory, Information, and Incentives, Springer Science & Business.
Forbes.com (2017) The 10 Companies With the Best CSR Reputations, [Online], Available: https://www.forbes.com/pictures/efkk45mmlm/no-3-the-walt-disney-company-2/#152bb0097814 [27 Dec 2017].
Grossman, H.A. (2005) ‘Refining The Role Of The Corporation: The Impact Of Corporate Social Responsibility On Shareholder Primacy Theory’, Deakin Law Review, vol. 10, no. 2, p. 572.
Intel.com (2016) 2016 Corporate Responsibility Report, [Online], Available: https://www.intel.com/content/www/us/en/corporate-responsibility/corporate-responsibility.html [27 December 2017].
Intel.com (2017) Where Can I Find Intel’s Mission Statement, Values, and Objectives?, 2 Nov, [Online], Available: https://www.intel.com/content/www/us/en/support/articles/000015119/programs.html [27 Dec 2017].
Jones, T.M. and Felps, W. (2013) ‘Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique’, Business Ethics Quarterly, vol. 23, no. 2, pp. 207-238.
Microsoft.com (2016) Microsoft releases 2016 Corporate Social Responsibility report, 18 Oct, [Online], Available: https://blogs.microsoft.com/blog/2016/10/18/microsoft-releases-2016-corporate-social-responsibility-report/ [27 Dec 2017].
Smith, N.C. and Ronnegard, D. (2016) ‘Shareholder Primacy, Corporate Social Responsibility, and the Role of Business Schools’, Journal of Business Ethics, vol. 134, no. 3, pp. 1-44.
Watson, D. and Head, A. (2016) Corporate Finance: Principles and Practice, 7th edition, Prentice Hall.
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