Shareholders
The management of publicly held corporations has the responsibility of maximizing the stakeholder’s wealth. This model is known as the Shareholder Wealth Maximization SWS Models that are used in management. This is a common feature of management used in the US. Another alternative is the Corporate Wealth Maximization (CWM) model. This model deals with the company’s goal of including not only the stakeholders, but also the suppliers, the local community, the employees, and the creditors. This model is commonly used in European countries and in Japan.
Corporate Wealth Maximization Model is profitable in this company compared to Shareholder Wealth Maximization in various ways. The Shareholder Wealth Maximization model main focus is to increase the returns to be gained by shareholders. This is measured in terms of dividend and capital gains in a given risk. The firm therefore, minimizes the risks to be faced by shareholder through returns at a given rate. The limitation of this model is general assumption of its universal truth of the efficiency of the stock market. This is that the prices of shares are correct since it fulfils the expectations of the risks and returns that the investors perceive.
In the macro economy, the share prices are the allocations of capital. Risk in SWM model is targeted as the universal truth. Therefore, the management is not concerned with individual risks security. The function of the stock market is to determine the risks of the share price. The unsystematic risk is not the concern of the management but the systematic risks is the market risk which cannot be eliminated.
Corporate wealth maximization model contrasts with Shareholders Wealth maximization model. The Japanese and European markets are characterized by the philosophy of maximizing corporate wealth and the objectives of corporation. The shareholders are seen as part of the group just like the interests of the local community, labor, management, creditors, suppliers and the government. The aim of this model is to increasingly earn in the long term duration while also retaining to as to increase the wealth of the corporation for the common benefit of all. This is a beneficial model which we can use to increase Quick Connector’s wealth like its market, human and technical resources NBEA (2009).
Corporate Wealth maximization model is advantageous because it does not consider the equality in the market as being inefficient or efficient. This is not a main concern for the management because the financial goal of the forms is not oriented to shareholders exclusively. The model assumes that the shareholders have a responsibility of influencing the strategies to be used in the firm. The model assumption on risks is that it counts to operate in financial and operating risk. The main objective of the corporation is to generate growing dividends and earnings over long term duration. This is done with management suitability according to the firm’s goals and mission statement. Risk is therefore, less measured in short term variation in share price and earnings than in market variability.
The CWM model is beneficial to Quick Connector’s because the firm’s human resources and assets will be increased while at the same time operations risks will be reduced due to risk diversification. This is not possible with SWM model because shareholders are diversified already. It will be of value to diversify the firm. Another advantage of CWM model concerns the stock options. The management has control of the stock operation as compared to SWM model where benefit is only to the shareholders.
Corporate Wealth maximization model gives the management an opportunity to view the entire scope strategy that can be used by the enterprise; this is a big picture which the service and product markets can be determined to give a complete picture of the geographic region that Quick Connects operates in. This is will help in allocating resources in the right direction, such as equipments, cash, and staff.
The measure of the position of the firm that uses corporate Wealth maximization model is beyond the use of financial reports. It tells of the positions of the firm, the skills and knowledge of employees, proficiencies in technology, the process of manufacturing and the capabilities of the administration. These are the required strategies that need to be used in Quick Connectors for it’s to be rejuvenated.
Most corporations in the US have failed due to the mismanagement and due to conflicts of interest. Investors have been misinformed to buy the highly risky shares or those close to bankruptcy. The stakeholders and the management have contributed to destroying the firms yet they receive generous profits (Eiteman, 2007, pp 499). Corporate Wealth maximization model is therefore, the best for Quick Connectors because it will be a common responsibility for the shareholders, the management, employers and creditors to increase financial wealth and to improve the company’s financial status. They can share in decision making as one firm.
Reference
Eiteman (2007) Multinational business finance, Publisher Pearson Education, pp 496-500
NBEA (2009) North east Business& Economic ASSOCAIATION, 2009 Conference proceedings. Retrieved from
https://webstorage.worcester.edu/sites/wobrien/nbea/Shared Documents/Archived 2009
on August 30, 2010
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