Should Companies Run Primarily To Generate Profits For Shareholders?

There are several reasons on why companies must run primarily to generate profits for shareholders. The mispricing of risk and the employment of foolish and irresponsible lending practices all the way down the finance chain was the basic reason for the financial crisis of 2007-2009 and the problems connected to it. Failed to manage risk as the reason for the crisis is where some have focused on while others have identified a wider reason which are the short-termite pressure placed on directors as a result of the demands of shareholders forum sustainable ever-increasing earnings growth that was possible only by way of the shortcut of over-leverage and reduced investment, and the dangerous route of excessive risk. The financial …show more content…
It has been said that there is not a clear authority to state that UK and Commonwealth cases holds that only shareholder interests are to be the concern of the directors. But a number of cases do suggest that the focus should be on shareholders. Others have said that the directors are to act in the interests of the company. Besides that, they also indicated that the interests of the company involve much more than the interests of shareholders. The courts have opined that the present and future shareholders are without any doubt in connection to companies for the benefits that is for the profits. The phrase “members as a whole” means that future shareholders. It could also be indicated that the similar phrase is likely to be applied by many courts in the exact same way as “interest of the company” was under the old duty. It has been argued that, nothing can be found in the existing case law that can forbade the directors of their companies from taking into account the long-term consequences of what they were intended to do and besides the interest of other than shareholders, as long as the directors acted in good faith in the best interests of the company as a whole is what …show more content…
The former Chancellor of the Delaware Court of Chancery, William Allen opined that “the law ‘papered over’ the conflict in our conception of the corporation by invoking a cloudy distinction between long-term and short-term profit maximization.” Here short-termism is defined as the “foregoing economically worthwhile investments with longer-term benefits which in order to increase reported earnings for the recent time.” The directors would be paying out more to shareholders every amount earned as profit and with no consideration of investing funds and expansion of the company’s market if a short-term approach is to apply. Directors would aim to balance the seeking of opportunities to make profits now with opportunities to make profits in the future are the long-term