Every organization must put in place adequate measures if they are to accomplish all their goals effectively. This involves laying down all the goals that they wish to achieve while at the same time considering threats to the success of their business. However, most organizations forget to consider value as a matter of maximizing their short-term financial performance. Fortunately, the “Stakeholder Theory” is available to contend with value maximization. According to this theory, managers need to make decisions in order to take into account all the interests of all stakeholders of the corporation or firm.
Unfortunately, the stakeholder theory does not clearly explain how the managers are going to make the decisions among competing interests. This short fall does not make the stakeholder theory any better since it serves the same purpose as firms which put more emphasis on short-term financial gain. Fortunately, there is a new lifeline for managers when it comes to keeping pace with the current changes. However, value maximization and stakeholder theory need to be interpreted differently if the new changes are to be made. Once this is done, organizations will be able to make use of long-term maximization as the criteria for making trade-offs among stakeholders.
The good news is that managers are already using the enlightened value maximization and stakeholder theory. Enlightened value maximization recognises the fact that it is extremely difficult for an organization to achieve efficient communication and motivation among the managers, employees and partners. What this basically means is all participants of an organization need to maximise value. The organization must therefore put in place a structure which will help people understand the true meaning of value maximization. Once this is done, it becomes easier for every person involved to get maximum value of the organization.
Enlightened stakeholder theory on the other hand takes advantage of the current audits and processes. With these two, a firm is able to measure and evaluate their management and its connection with important constituencies. Furthermore, the theory adds that the main objective function of a firm is to maximize long-term firm market value. With long-term market value, markets will understand the full implication of any given firm’s policies. This is repeated until when the policies start showing up in cash flows over time.
Many people are still confused by optimization and value seeking or value creation. However, these are two different things which must be examined differently if you are to understand them. Some of the things that we have to understand include the meaning of maximum value and how to implement strategies and changes which lead to an increase in value.
Theorists must review value maximization and the stakeholder theory if they are to help firms achieve their intended purpose. In the meantime, managers should look at value maximization and stakeholder theory from a different angle. It is only through this method that they will be able to achieve all their goals while also looking at the needs of all stakeholders.