Final answer:
The main goal of the financial manager is usually to maximize shareholder wealth, a concept rooted in the duty managers owe to the shareholders. However, stakeholder theory presents an alternative view, proposing a balance between the interests of all parties involved with the firm. This debate reflects evolving perspectives on corporate responsibility and the impact of business decisions.
Step-by-step explanation:
The primary goal of the financial manager is often cited as the maximization of shareholder wealth. This is based on the deontological perspective of shareholder primacy, which asserts that managers have a duty to act in the best interests of the shareholders, who own a portion of the company and invest capital with the expectation of a favorable return. This traditional view is contrasted with stakeholder theory, which advocates for a balance of interests among all stakeholders, including employees, customers, communities, and shareholders.
In the context of safety and liability, historical regulations such as those established by the Occupational Safety and Health Administration (OSHA) and past political reforms have shaped the way companies are expected to operate, aligning the profit-seeking behaviors of firms with the broader interests of stakeholders. As firms grow and gain the ability to profit in the near future, they attract outside investors such as bondholders and shareholders. The involvement of these external parties typically diminishes the need for personal relationships with managers as detailed information about the company's financials becomes more readily available.
Milton Friedman was a strong proponent of the idea that companies exist primarily to serve the interests of shareholders, positing that they deserve the maximum possible return on their investment. However, today’s understanding of corporate responsibility often includes a broader range of interests encompassing those of various stakeholders, reflecting a more inclusive view of who is impacted by the company's operations and success.