What is meant by the goal of maximization of shareholder wealth?

Shareholders are the Real "Owners"

Never forget that the shareholders are the real owners of a business. Officers (CEO's, Presidents, CFO's and VP's) may control day to day operations but unless they too are shareholders, they have no right to claim any company profits or assets. They are all just "employees".

Theoretically, any profitable company could elect to close its doors on any given day and stop doing business. After the bills are paid any all non-liquid assets liquidated, the money would be distributed to the shareholders (via priority) by the company buying back its shares. "Maximizing shareholder wealth" would therefore mean that upon liquidation, the value of cash shares held for repurchase by the shareholder (and by the company after all assets were sold) would be LESS on a per share basis than what the public market would pay for those same shares at the present moment.

Since this can't be done while the company is still operating, Company management therefore desires to do everything it can to 1. drive the price of the stock, and 2. reduce the number of shares issued and outstanding (the dilution)

ANSWER

Public Company

For a public company, increasing shareholder value may mean driving the stock price as high as possible and also increasing dividends.

Enlightened Management

The goal of maximization of shareholder wealth is meant by; first, in most cases "enlightened management" is aware that the only way to maintain its position over the long run is to be sensitive to shareholder concerns. Poor stock price performance relative to other companies often leads to undesirable takeovers and proxy fights for control. Second, management often has sufficient stock option incentives that motivate it to achieve market value maximization for its own benefit. Third, powerful institutional investors are making management more responsive to shareholders.

First answer by Klox. Last edit by Kkonzelman. Contributor trust: 9 [recommend contributor]. Question popularity: 150 [recommend question]