In ‘Shareholder value and corporate purpose’ (1986, in De Wit & Meyer, 2010, Reading 11.1), what is Alfred Rappaport’s basic argument?
The primary purpose is to maximize shareholder value
The moral responsibility of management is to maximize shareholder value
The goal of shareholder wealth is, at best, illusionary
Shareholder’s wealth will always grow (or decline) at the same rate as the organization stakeholder’s wealth.
What, according to Rappaport (‘Shareholder value and corporate purpose’, 1986, in De Wit & Meyer, 2010, Reading 11.1), is the main reason why management should pursue the objective of economic returns for the shareholders?
Failure to do so will be met with higher costs of financing, thus reducing the competitive position, and even the viability, of the organization
The moral obligation to do the best for the stakeholders implies that the firm must survive, and this can only be done by ensuring adequate returns to the shareholders
The success of the organization is based solely on the success of the stakeholders, and as such, it is irresponsible to only pursue economic growth for the shareholders
Rappaport (1986) does not believe that it is necessary to pursue economic growth for the shareholders, rather, viability should be pursued.
According to Rappaport in his article ‘Shareholder value and corporate purpose’ (1986, in De Wit & Meyer, 2010, Reading 11.1), the important mechanisms, by which managers can be convinced to adopt a shareholder orientation, are:
I To base the management’s incentive portion on market returns, realized by shareholders. II To regulate activities of top management by means of organizational hierarchy. III An active market for corporate control. IV Active internal and external markets for corporate executives.
I and IV
II and IV
II
IV.
According to Rappaport in his article ‘Shareholder value and corporate purpose’ purpose’ (1986, in De Wit & Meyer, 2010, Reading 11.1), Phase II restructuring emphasizes:
The shareholder value, as a fundamental and continuing approach in the planning and performance monitoring of all business strategies
The importance of employing the shareholder value approach, in buying and selling business operations
The importance of autonomy and entrepreneurship, as one of the attributes of corporate excellence
The value of simple organizational form and knowledgeable staff, in achieving economic efficiency.
In discussing the need to more closely align the objectives of management, with those of shareholders, Rappaport (in ‘Shareholder value and corporate purpose’, 1986, in De Wit & Meyer, 2010, Reading 11.1) refers to one publication which was the ‘must read’ in the early 1980s: