Which of the following best explains why the maximisation of shareholder wealth is said to be the primary objective for company directors? A It aligns the directors’ interests with those of the shareholders. B It eliminates agency problems. C It maximises profit. D It provides a measurable basis for evaluating decisions. The answer provided in Examiner report is D. But why A cannot be accepted?
Maximising shareholder wealth doesn't necessarily align with the directors' interests. For example, the directors' interests may be to secure the future of the business (and of their jobs) or to work on particular projects that interest them. [Not what this particular question is asking, but we know that to help avoid this potential agency issue, directors may be offered share or a share price related incentive to help better align their interests with those of the shareholders.] Best wishes Lynn
