Objective Myopia: Why Executives Fail to Secure the Creation of Maximum Shareholder Value and Sustainable Profitability in the Passage of Time and Change in the Economic Environment

Abstract

The shareholder wealth maximization theory has been widely considered as the primary objective and performance measure of executives and the business organization they run on behalf of its shareholders around the world and yet many executives’ understandings of the primary objective can be observed myopic. What has been myopically understood by many executives is the primary objective of the shareholders for which they financed the company: To secure the creation of maximum shareholder value and sustainable profitability or to make money as much as possible regardless of the product, service, business, industry or market the company may operate in the passage of time and change in the economic environment as long as the primary objective will be legally achieved. Why? Because as we have shifted the global economy from barter to the use of currency, we are rich or poor according to the degree in which we can afford to enjoy the necessaries, conveniences, and amusements of human life using money. As Alfred Sloan Jr., the legendary CEO of General Motors, explained the primary objective of the company in his own words

“The strategic aim of business is to earn a return on capital, and if in any particular case the return in the long run is not satisfactory, then the deficiency should be corrected, or the activity abandoned for a more favorable one.”

From Alfred Sloan Jr.’s perspective, it is very clear that the business activity or product is just one of the means to make money in the world economy and it should be abandoned for a better alternative if the return on capital is no longer satisfactory or if the deficiency cannot be corrected such as in the case obsolescence.