In Practice Stakeholder Wealth Maximization and Balanced Scorecards

Some theorists have suggested that the best way to consider the interests of all of the different stakeholders in a modern corporation is to replace stockholder wealth maximization with a broader objective of stakeholder wealth maximization, where stakeholders include employees and society. While it sounds wonderful as a concept, we believe that it is not a worthwhile alternative for the following reasons:

• When you have multiple stakeholders, with very different objectives, you will inevitably have to choose between them. For instance, laying off employees at a firm that is overstaffed will make stockholders and bondholders better off while creating costs and society. Stakeholder wealth maximization provides little direction on the proper way to balance these competing interests.

• Adding to the problem is the fact that not all of the costs and benefits to some stakeholders can be quantified. This is especially true of social costs and benefits, leaving the assessment to analysts who have their own biases.

22 In the 1990s, the Tupinikim and Guarani Indians launched an international campaign against Aracruz in the state of Espirito Santo to recover and expand their traditional territories

23 A 1946 investigation by the US military recommended Deutsche Bank be liquidated and its top officials be tried as war criminals.

• Most importantly, stakeholder wealth maximization makes managers accountable to no one by making them accountable to every one. Managers can essentially go before each stakeholder and justify their failures by arguing that other stakeholder interests were being considered. It may still useful for firms to go beyond the proverbial bottom line, which is what a balanced scorecard attempts to do. As devised by Robert Kaplan, a Harvard strategy professor, balanced scorecards try to go beyond financial measures and look at customer satisfaction and internal business processes.24

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