Answer to Question #182190 in Management for Okyere

Question

What goals might be pursued by managers instead of maximization of shareholder wealth?

Answer 1

The Goals of a Manager

A manager is defined as a person who is in charge of something. Apart from maximization of shareholder wealth, managers are associated with many goals counting strategic planning, organizing, directing, and controlling of resources in an organization. It involves applying management principles to the financial and fiscal assets of an organization. In this discussion, I will discuss the goals that are practiced by managers other than the maximization of wealth for shareholders. 

Profit maximization is the main goal of a manager. Making profits is the major goal of any economic activity undertaking. Business success is measured by the profits it makes. Managers are being guided by one theory where they trust that the higher the profit, the greater the degree of success, (Bateman et al., 2002). In this way, a manager’s main goal in any organization is to make sure it gets as much profit as possible. Making profits can be achieved by increasing selling prices assuming demand does not decrease at the same scale. The manager uses their management skills to make this a valid dream. 

In addition to this, maximizing value without harming stakeholders is another goal that is associated with the manager. Arguably, it’s an ambition of the managers to maximize value without harming the stakeholders, and the diverse set of parties that are affected by the business. Stakeholders are those who are affected by an organization's activity. They can be internal or external to the organization and some can be directly involved in an economic transaction with the firm and others may not, (Bateman et al., 2002).

Another goal of a manager is found in the valuation process. Valuation is a term used in finance to describe the process of determining how much something is worth. Managers need to keep proper financial records for their businesses so that they can know the value of their own business but also to enhance the value of their businesses to potential buyers, creditors, or investors.

The manager also has the goal of minimization of cost per Capital. Capital is indeed a scarce resource, where a price has to be paid to obtain the same and thus minimization of cost per capital is an important aspect of management. Minimization of capital cost increases the value of the firm. According to Bateman et al., (2002), if the overall cost of capital is less, the firm can even take marginal projects and make good returns from them. 

In conclusion, of all the goals of the manager, they are also very keen on making sure the risk reduction is achieved by going in for a mix of risk-free and risky investments. Diversification of investments, as against concentration, helps in reducing business risk. They also make sure debt payment scheduling and re-scheduling as this greatly help in reducing financial risk 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference

Bateman, T. S., O'Neill, H., & Kenworthy-U'Ren, A. (2002). A hierarchical taxonomy of top managers' goals. Journal of Applied Psychology, 87(6), 1134.