Enlightened Shareholder Value Analysis

1747 Words7 Pages
‘Enlightened shareholder value (ESV) is the idea that corporations should pursue shareholder wealth with a long-run orientation that seeks sustainable growth and profits based on responsible attention to the full range of relevant stakeholder interests’. This concept combines two other doctrines of the corporate governance, where one doctrine (known as shareholder primacy) says that the primary aim of corporations is to act in the best interests of the shareholders, while the other doctrine (also known as pluralist approach) states that those corporations should be socially responsible in maximizing their profits. So, again, the primary aim of the ESV is to maximize the profit by acting in the favour of shareholders and taking into consideration…show more content…
In other words, directors need to act in good faith in the best interest of the company. However, once shareholders delegated their power to directors there was another issues, whether directors should act in the best interests of shareholders only, or focus on the interests of other stakeholders? So, whose interests should be promoted by the directors? Some scholars believe that the focus should be made on stakeholders, as they are under the risk of the firms` actions; they contribute to the company ‘some form of capital, human or financial, something of value, in a firm’. So, corporations should be responsible toward stakeholders. However, stakeholders are of a wide range of interests that should be accounted, and when corporation is responsible to everyone it means that they are not responsible to anyone, and this theory can lead to the corporate governance meaningless. This happens because company is focused not on the achieving of long-term objectives, but on the interests of customers, employees etc. instead. Notwithstanding, it does not also mean that company should act and be accountable only in respect of shareholders who delegate them the governance of the company. From the point of shareholder primacy, the primary aim of corporations is to focus on the company and be accountable to shareholders, and thus focus ‘on stakeholders only to the extent that this is required by law and by concerns for the firm`s reputation, credibility and image’. So, Enlightened Shareholder Theory stands for the rejection of shareholder primacy (the effect of the shareholder theory can be seen from the Enron crisis where managers were required to increase profit to shareholders and, thus it encouraged managers to make manipulations with accounts of the company) and focus on other

More about Enlightened Shareholder Value Analysis

Open Document