The Goal of the Firm

Some people suggest that the primary monitoring of managers comes not from the owners but from the managerial labor market. They argue that effrcient capital markets provide signals about the value of a company's securities, and thus about the performance of its managers. Managers with good performance records should have an easier time finding other emplopnent (if they need to) than managers with poor performance records. Thus, if the managerial labor market is competitive both within and outside the firm, it will tend to discipline managers. In that situation, the signals given by changes in the total market value of the firm's securities become very important.

Corporate SociaI Responsibitity (CSR)

Maximizing shareholder wealth does not mean that management should ignore corporate social responsibility (CSR), such as protecting the consumer, papng fair wages to employees, maintaining fair hiring practices and safe working conditions, supporting education, and becoming involved in such environmental issues as clean air and water. It is appropriate for management to consider the interests of stakeholders other than shareholders. These stakeholders include creditors, employees, customers, suppliers, communities in which a company operates, and others. Onlythrough attention to the legitimate concerns of the firm's various stakeholders can the firm attain its ultimate goal of maximizing shareholder wealth.

Over the last few decades sustainability has become a growing focus of many corporate social responsibility efforts. In a sense, corporations have always been concerned with their ability to be productive, or sustainable, in the long term. However, the concept of sustainability has evolved to such an extent that it is now viewed by many businesses to mean meeting the needs of the present without compromising the ability of future generations to meet their own needs. Therefore, more and more companies are being proactive and taking steps to address issues such as climate change, oil depletion, and energy usage.