The Experts below are selected from a list of 53823 Experts worldwide ranked by ideXlab platform
Michael C Jensen - One of the best experts on this subject based on the ideXlab platform.
-
value maximization stakeholder theory and the Corporate Objective function
Business Ethics Quarterly, 2002Co-Authors: Michael C JensenAbstract:In this article, I offer a proposal to clarify what I believe is the proper relation between value maximization and stakeholder theory, which I call enlightened value maximization. Enlightened value maximization utilizes much of the structure of stakeholder theory but accepts maximization of the long-run value of the firm as the criterion for making the requisite tradeoffs among its stakeholders, and specifies long-term value maximization or value seeking as the firm’s Objective. This proposal therefore solves the problems that arise from the multiple Objectives that accompany traditional stakeholder theory. I also discuss the Balanced Scorecard, which is the managerial equivalent of stakeholder theory, explaining how this theory is flawed because it presents managers with a scorecard that gives no score—that is, no single-valued measure of how they have performed. Thus managers evaluated with such a system (which can easily have two dozen measures and provides no information on the tradeoffs between them) have no way to make principled or purposeful decisions. The solution is to define a true (single dimensional) score for measuring performance for the organization or division (and it must be consistent with the organization’s strategy), and as long as their score is defined properly, (and for lower levels in the organization it will generally not be value) this will enhance their contribution to the firm.
-
value maximisation stakeholder theory and the Corporate Objective function
European Financial Management, 2001Co-Authors: Michael C JensenAbstract:This paper examines the role of the Corporate Objective function in Corporate productivity and efficiency, social welfare, and the accountability of managers and directors. I argue that since it is logically impossible to maximise in more than one dimension, purposeful behaviour requires a single valued Objective function. Two hundred years of work in economics and finance implies that in the absence of externalities and monopoly (and when all goods are priced), social welfare is maximised when each firm in an economy maximises its total market value. Total value is not just the value of the equity but also includes the market values of all other financial claims including debt, preferred stock, and warrants. In sharp contrast stakeholder theory, argues that managers should make decisions so as to take account of the interests of all stakeholders in a firm (including not only financial claimants, but also employees, customers, communities, governmental officials and under some interpretations the environment, terrorists and blackmailers). Because the advocates of stakeholder theory refuse to specify how to make the necessary tradeoffs among these competing interests they leave managers with a theory that makes it impossible for them to make purposeful decisions. With no way to keep score, stakeholder theory makes managers unaccountable for their actions. It seems clear that such a theory can be attractive to the self interest of managers and directors. Creating value takes more than acceptance of value maximisation as the organisational Objective. As a statement of Corporate purpose or vision, value maximisation is not likely to tap into the energy and enthusiasm of employees and managers to create value. Seen in this light, change in long‐term market value becomes the scorecard that managers, directors, and others use to assess success or failure of the organisation. The choice of value maximisation as the Corporate scorecard must be complemented by a Corporate vision, strategy and tactics that unite participants in the organisation in its struggle for dominance in its competitive arena. A firm cannot maximise value if it ignores the interest of its stakeholders. I offer a proposal to clarify what I believe is the proper relation between value maximisation and stakeholder theory. I call it enlightened value maximisation, and it is identical to what I call enlightened stakeholder theory. Enlightened value maximisation utilises much of the structure of stakeholder theory but accepts maximisation of the long run value of the firm as the criterion for making the requisite tradeoffs among its stakeholders. Managers, directors, strategists, and management scientists can benefit from enlightened stakeholder theory. Enlightened stakeholder theory specifies long‐term value maximisation or value seeking as the firm’s Objective and therefore solves the problems that arise from the multiple Objectives that accompany traditional stakeholder theory. I also discuss the Balanced Scorecard, the managerial equivalent of stakeholder theory. The same conclusions hold. Balanced Scorecard theory is flawed because it presents managers with a scorecard which gives no score—that is, no single‐valued measure of how they have performed. Thus managers evaluated with such a system (which can easily have two dozen measures and provides no information on the tradeoffs between them) have no way to make principled or purposeful decisions. The solution is to define a true (single dimensional) score for measuring performance for the organisation or division (and it must be consistent with the organisation’s strategy). Given this we then encourage managers to use measures of the drivers of performance to understand better how to maximise their score. And as long as their score is defined properly, (and for lower levels in the organisation it will generally not be value) this will enhance their contribution to the firm.
-
value maximization stakeholder theory and the Corporate Objective function
Journal of Applied Corporate Finance, 2001Co-Authors: Michael C JensenAbstract:This paper examines the role of the Corporate Objective function in Corporate productivity and efficiency, social welfare, and the accountability of managers and directors. The author argues that because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a single-valued Objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy maximizes its total market value. The main contender to value maximization as the Corporate Objective is stakeholder theory, which argues that managers should make decisions so as to take account of the interests of all stakeholders in a firm, including not only financial claimants, but also employees, customers, communities, and governmental officials. Because the advocates of stakeholder theory refuse to specify how to make the necessary tradeoffs among these competing interests, they leave managers with a theory that makes it impossible for them to make purposeful decisions. With no clear way to keep score, stakeholder theory effectively makes managers unaccountable for their actions (which helps explain the theory's popularity among many managers). But if value creation is the overarching Corporate goal, the process of creating value involves much more than simply holding up value maximization as the organizational Objective. As a statement of Corporate purpose or vision, value maximization is not likely to tap into the energy and enthusiasm of employees and managers. Thus, in addition to setting up value maximization as the Corporate scorecard, top management must provide a Corporate vision, strategy, and tactics that will unite all the firm's constituencies in its efforts to compete and add value for investors. In clarifying the proper relation between value maximization and stakeholder theory, the author introduces a somewhat new Corporate Objective called “enlightened value maximization.” Enlightened value maximization uses much of the structure of stakeholder theory—notably the need to consider the interests of all Corporate stakeholders—while continuing to posit maximization of long-run firm value as the criterion for making the necessary tradeoffs among stakeholders. The paper comes to similar conclusions about the Balanced Scorecard, which is described as the managerial equivalent of stakeholder theory. Although the Balanced Scorecard can add value by helping managers better understand the drivers of shareholder value, it should not be used as a performance measurement and incentive compensation system because it fails to provide a single valued score, a clear way of distinguishing superior from substandard performance.
-
value maximization stakeholder theory and the Corporate Objective function
Journal of Applied Corporate Finance, 2001Co-Authors: Michael C JensenAbstract:This paper examines the role of the Corporate Objective function in Corporate productivity and efficiency, social welfare, and the accountability of managers and directors. The author argues that because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a single-valued Objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy maximizes its total market value. 2001 Morgan Stanley.
Bidhan Parmar - One of the best experts on this subject based on the ideXlab platform.
-
Stakeholder Theory and “The Corporate Objective Revisited”
Organization Science, 2004Co-Authors: R. Edward Freeman, Andrew C. Wicks, Bidhan ParmarAbstract:Stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business. It asks managers to articulate the shared sense of the value they create, and what brings its core stakeholders together. It also pushes managers to be clear about how they want to do business, specifically what kinds of relationships they want and need to create with their stakeholders to deliver on their purpose. This paper offers a response to Sundaram and Inkpen’s article “The Corporate Objective Revisited” by clarifying misconceptions about stakeholder theory and concluding that truth and freedom are best served by seeing business and ethics as connected.
Andrew C Inkpen - One of the best experts on this subject based on the ideXlab platform.
-
stakeholder theory and the Corporate Objective revisited a reply
Social Science Research Network, 2004Co-Authors: Anant K Sundaram, Andrew C InkpenAbstract:Freeman et al. (2004) offer a spirited rebuttal to our paper The Corporate Objective Revisited from the perspective of stakeholder theory. However, they fall short in making a case against the logic of shareholder value maximization. The authors confound issues of value and values, ignore the rich history of scholarship on related questions, and perhaps misinterpret some of our core arguments. Most importantly, proponents of stakeholder views such as Freeman et al. appear to be unable to go beyond critiques of the shareholder view by failing to offer an empirically supportable alternative theory.
R. Edward Freeman - One of the best experts on this subject based on the ideXlab platform.
-
Stakeholder Theory and “The Corporate Objective Revisited”
Organization Science, 2004Co-Authors: R. Edward Freeman, Andrew C. Wicks, Bidhan ParmarAbstract:Stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business. It asks managers to articulate the shared sense of the value they create, and what brings its core stakeholders together. It also pushes managers to be clear about how they want to do business, specifically what kinds of relationships they want and need to create with their stakeholders to deliver on their purpose. This paper offers a response to Sundaram and Inkpen’s article “The Corporate Objective Revisited” by clarifying misconceptions about stakeholder theory and concluding that truth and freedom are best served by seeing business and ethics as connected.
Anant K Sundaram - One of the best experts on this subject based on the ideXlab platform.
-
stakeholder theory and the Corporate Objective revisited a reply
Social Science Research Network, 2004Co-Authors: Anant K Sundaram, Andrew C InkpenAbstract:Freeman et al. (2004) offer a spirited rebuttal to our paper The Corporate Objective Revisited from the perspective of stakeholder theory. However, they fall short in making a case against the logic of shareholder value maximization. The authors confound issues of value and values, ignore the rich history of scholarship on related questions, and perhaps misinterpret some of our core arguments. Most importantly, proponents of stakeholder views such as Freeman et al. appear to be unable to go beyond critiques of the shareholder view by failing to offer an empirically supportable alternative theory.
