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Focus on Stakeholders

The shareholders wealth maximization as the primary goal norwithstanding, there is a broader focus in financial management to include the interest of the stakeholders as well as the shareholders. The stakeholders include employees, customers, suppliers, creditors and owners and others who have a direct link to the farm. The implication of the focus on stakeholders is that a firm should avoid actions detrimental to them through the transfer of their wealth to the firm and thus, damage their wealth. The goal should be preserve the well-being of the stakeholders and not to maximize it.

The focus on the stakeholders does not, however, alter the shareholders wealth maximization. It tends to limit the firm’s actions to preserve the wealth of the stakeholders. The stakeholders view is considered pan of its “social responsibility” and is expected to provide maximum long-term benefit to the shareholders by maintaining positive stakeholders relationship which would minimize stakeholder turnover; conflict and litigation. In brief, a firm can better achieve its goal of shareholders wealth maximization with the cooperation of, rather than conflict with, its other stakeholders.

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