A recent article in The Wall Street Journal
discusses the role of ethics in business education. While we don't want
to take a side on the general discussion, we would like to take a
strong stance against one particular quote:
"Though maximizing shareholder returns isn't a bad goal in itself, focusing on
that at the expense of customer satisfaction, employee well-being or
environmental considerations can be dangerous."
In our view, maximizing shareholder wealth is the only goal of a corporation, period. The examples used in the WSJ article
show a general misunderstanding of shareholder wealth maximization. For
example, nowhere does our goal say that the company should not be
concerned with customer satisfaction. Dissatisfied customers lead to
reduced sales, profits, and cash flows, which reduces shareholder
wealth. But, a company should not focus on customer satisfaction to the detriment of wealth maximization.
Shareholder wealth maximization also does not state that employee
well-being is not important. Employee satisfaction can increase
shareholder wealth, but only to a point. Employees who make minimum wage
would be more satisfied making six-figure salaries, but customers would
not be able to afford to buy any of the company's products. In short,
ethical decisions are generally necessary to maximize shareholder
wealth.
