Financial Management Should Include Not only a Concern for Profit Maximization but Also for Maximization of Societal Value

“Financial management should include not only a concern for profit maximization but also for maximization of societal value.”

        Yes, it is the advanced goal of financial management to maximize shareholder wealth because it is through the shareholders’ wealth why an organization is existing.  It should be the utmost concern of any financial manager to preserve, protect, or prioritize the best financial interests of the organization where he or she belongs.  The function of financial management is the effectively and efficiently manage the funds of the organization to achieve both the company’s short and long-term financial objectives.   Ross, et al (2015) stated that “the financial manger best serves the owners of the business by identifying goods and services that add value to the firm because they are desired and valued in the free marketplace”.

        While I believe in the primary goal of Financial Management, I think, it should also focus more on the maximization of societal value.  It should not look upon the other resources of the company, i.e. human resources, as purely cost as employees bring with them various talents needed by the organization to sustain its operations.  In cases of austerity measures, the organization must focus on either creating more revenue streams or cutting cost than reducing manpower.  Some organizations result to rationalizing manpower when the company is not doing well in terms of financial performance.  This position does not, in any way, claim that organizations which outright reduce manpower to cut on cost is entirely wrong.  It should be clearly made the stance of the writer is towards making manpower rationalization the last course of action in case organizations need to manage costs.  On a macro level perspective, organizations must exist because it is an integral part of our society in a way that it supports the livelihood of people working for it and the end goal must not be for profit alone.  In addition, organizations must not result to unethical or illegal practices nor circumvent laws to achieve its goal of maximizing shareholder equity.  Also, organizations must also be socially responsible to the environment where they are in.  Helping the community is always the best way of giving back.

        Given my views on both statements, I prefer that “Financial management should include not only a concern for wealth maximization but also for maximization of societal value”.  As Friedman puts it “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."