Government bodies and trade associations

Answer:

Introduction:

The Shareholder Wealth Maximization theory leads to the theory that refers to the fact that primary motive of a corporate is to maximize the wealth of a firm and earn subsequent profit to its shareholders. A shareholder is essentially a person who owns the shares of a company, which indicate ownership in a firm. Shareholder Wealth Maximization theory is adopted by the management of various organizations for earning more profits, which will in turn increase the stock, price of the firms. This is because with the increase in the stock price the wealth of the shareholders who own these stocks also increase (Harrison and Wicks 2013). The increase in the stock price also increases the net worth of the shareholders holding such stocks.

The preference or the supremacy of the SWM theory in respect to other theories as a corporate objective has been precisely due to the following factors:

• It is stated by many experts that the share or stock prices are the best possible allocators of capital especially in a macro economy

Thus, the primacy or the supremacy of the SWM theory refers to the theory in the field of corporate governance that essentially states that the interests of the shareholders should be given the first priority in regards to the other stakeholders (Mansell 2015).

The primary distinction between the SWM theory and the stakeholder theory is that the former theory focuses on only profit earning as the only corporate objective in order to increase the wealth of the shareholders. While the later primarily focuses on the stakeholders of the business and forms a foundation for serving the interests of the stakeholders at first, as they are the building blocks of the organization (Tantalo and Priem 2016).

Why has there been a shift from the SWM to the stakeholder theory?

Greenergy, another leading company in the fuel market of United Kingdom reveals in its annual report that the corporate objective that it follows is the Shareholder Wealth Maximization theory (Greenergy.com 2017).

Conclusion:

Harrison, J.S. and Wicks, A.C., 2013. Stakeholder theory, value, and firm performance. Business ethics quarterly, 23(1), pp.97-124.

Harrison, J.S., Freeman, R.E. and de Abreu, M.C.S., 2015. Stakeholder theory as an ethical approach to effective management: Applying the theory to multiple contexts. Revista Brasileira de Gestão de Negócios, 17(55), p.858.