Is Shareholder Profit Maximization Efficient?

Abstract

<p>In Anglo-American corporate law, the board of directors are required to act in the best interest of the company which is often interpreted by the court and business people to mean the interests of the shareholders. As explained in II below, this shareholder supremacy theory is justified by the argument that this is the best way to maximize societal efficiency. But as explained in III, this had led to other stakeholders’ interests often ignored or sacrificed in order to maximise profits for the shareholders, resulting in many negative externalities for the society, eg harms to consumers, worker exploitations and environmental degradation. Directors often externalize the costs of company's operation to the society causing resources to be allocated inefficiently. There are also other non-economic arguments why shareholder primacy is wrong as explained in IV.</p>