Shareholder Theory

With the increasingly analyse on the business, the objective of company as the direction for the corporation arise investor’s attention. The company could not run well without a clear and correct direction. However, what is the good objective for a company? There are several suggestions based on this, the shareholder theory, stakeholder theory and so on. Shareholder theory is more preferable. This is not only because of the shareholder takes high risk but also the only objective enhances the effective of the company. Although the company would be greed at first stage, but after the company grow mature, the company would think about the customer relationship and supply relationship in order to create more value for the shareholder from the long term prospect.

  

This could be found from the case of the BP company oil spill in gulf of Mexico in year 2010.  From the annual report of BP, it could be found that the report in year 2009 and before is more focus on the shareholder value creation than the stakeholder’s value. However, after the oil leak gulf of Mexico, the strategy in 2010 is solely focuses on  stakeholder’s value, which act legitimate to the event. 

This is because BP cared about the shareholder’s value, and did not respond to the event immediately. After the small issue before a big event, the BP company only realise the importance of the stakeholder’s value after the customer boycott the BP’s product. This leads the share price of BP decreased from 636.40p on 2nd April to the lowest 302.90p on 29th June, more than half value has been disappeared. The shareholder value has been destroyed significantly.  

Moreover, the BP has costed $40.9 bn in bearing the responsibility of oil leak in the Gulf of Mexico and it led the company loss $4.9 bn in 2010 (first year loss since 1992) (http://www.bbc.co.uk/news/business-12333594). The CEO of BP has been changed by Bob Dudley. Furthermore, the change of strategy in 2010 also means that the company realised that the stakeholder’s value plays a vital part of shareholder wealth maximisation.

It has been argued that, company holding stakeholder’s value as the objective is difficult to achieve. This is cause of the multiple objectives is not objective. Company should apply the shareholder theory and take the stakeholder’s value into consideration before making decision. It is undeniable that shareholder’s value is critical for a company, however, company should take into consideration of the stakeholder’s opinion in tandem. This is due to, as if the same case happened again (such as Mexico oil leak), company ought to pay more towards the stakeholder, for instance, changing the impression of public towards the company, getting back the company’s reputation, increasing the market price and so on. Thus, in long term view, company should consider the stakeholder’s value, as they were the customers of the company and potentially become one of the shareholder in any time and the company could not operate along without any customers or suppliers. 

Since stakeholder’s value cannot be apart from the business organisation, in order to create the shareholder’s value maximisation, the company should therefore, also based on the value of stakeholder to achieve the long term corporate value. Hence, the better strategy could be the company focus on the shareholder theory, but need to make decision not only from the short term but also long term and consider the business environment.