Within many for-profit organizations, there are two common models that drive the decisions of all the leaders within the organization. One model refers to the shareholders and the other refers to the stakeholders. The models are the shareholder-wealth maximization model and the stakeholder model. Each model has its own challenges and benefits. As a leader, it is important to understand both models so you know how to best serve those you lead and your organization.
Shareholders
In today’s business environment there is a strong culture of leaders that follow the shareholder-wealth maximization model. As stated on wiki answers, “The Shareholder-Wealth Maximization model (SWM) goal states that the objective of a firm’s management should be to maximize the present value of the expected future cash flows to equity owners (shareholders). Consider cash flows to be the same as profits. Hence, the value of a firm’s stock is equal to the present value of all expected future profits, discounted at the the shareholders required rate of return.”
With the shareholder-wealth maximization model, whether it is the CEO, mid-level manager, or the supervisor, all leaders are taught to focus on maximizing the shareholder wealth. With shareholder wealth as the driving force, leaders have foregone ethics, moral values, and any other set of standards they held for the purpose of increasing the profit within their company. Leaders within this framework have taken greater risks or made other decisions that either led to their personal downfall or the downfall of the company. [Read more…] about Understand Your Stakeholders