I don’t believe this idea that a firm exists to maximize shareholder returns. If the entire economy was structured on that principle, the world would be dominated by exploitative, rent-seeking organizations even more than it is.
The reason for a firm to exist, primarily and sufficiently, is to produce goods and services that are needed or desirable in the world. There are several ways of judging and directing the firm according to this principle.
- The market is a very good indicator of what the world needs or wants, especially when it comes to the detailed and diverse wishes of individuals. It’s not sufficient, and certainly not right by definition, because the market is prone to manipulation, irrationality, and social injustice making the difference between true wishes and buying power.
- Critical opinion, commentary, or goodwill towards a firm and its activities. It’s no accident that quality consumer goods firms are held in higher regard than most banks.
- An objective analysis of the firm’s product and activities with respect to life, well-being, human fulfillment, and the environment.
- Policy. Companies need to be comissioned to create large-scale infrastructure where the market would yield lower-investment, higher use cost solutions
A second reason for a firm to exist is to provide comfortable and fulfilling employment to the people directly involved in the firm. Balance is the measure here. The firm is not a vehicle to get rich, nor is crushing, subsistence-level employment a goal.