increase market share reduce this year's profit. Therefore, it is not logically possible to
speak of maximising both market share and profits. In this situation it is impossible
for a manager to decide on the level of R&D, advertising, or price reductions, because
he or she is faced with the necessity to make tradeoffs between the two `goods' p and m
with no way to do so. While the manager knows that the firm should be at least at the
point of maximum profits or maximum market share, there is no purposeful way to
decide where to be in the area where the firm can obtain more of one only by giving up
some of the other.
3.2. Multiple objectives is no objective
It is logically impossible to maximise in more than one dimension at the same time
unless the dimensions are monotone transformations of one another. Thus, telling a
manager to maximise current profits, market share, future growth in profits, and
anything else one pleases will leave that manager with no way to make a reasoned
decision. In effect, it leaves the manager with no objective. The result will be confusion
and lack of purpose that will fundamentally handicap the firm in its competition for
survival.
4
A firm can resolve this ambiguity by specifying the tradeoffs among the
various dimensions, and doing so amounts to specifying an overall objective function
such as V f (x; y; :::) that explicitly incorporates the effects of decisions on all the
goods or bads (denoted by (x; y; :::)) affecting the firm (such as cash flow, risk and so
on). At this point the logic above does not specify what V is. It could be anything the
board of directors chooses, such as employment, sales, or growth in output. But, I
argue below that social welfare and survival will severely constrain the boards choices.
Nothing in the analysis so far has said that the function f must be well-behaved and
easy to maximise. If the function f is non-monotone, or even chaotic, it makes it more
difficult for managers to find the overall maximum. But even in these situations the
meaning of `better' or `worse' is defined, and managers and their monitors have a
principled basis for choosing and auditing decisions.
Without a definition of the meaning of better there is no principled foundation for
choice. In this light it is perhaps better to call this objective function `value seeking'
rather than value maximisation to avoid the confusion that arises when some argue
that maximising is difficult or impossible if the world is structured in sufficiently
complicated ways.
5
4. Issue 2: Total firm value maximisation makes society better off
Given that a firm must have a single objective that tells us what is better and what is
worse, we then must face the issue of what that definition of better is. (As I pointed
4
See (Jensen et al., 1991; Wruck et al., 1991) for an example of a small non-profit firm that
almost destroyed itself while trying to maximise over a dozen dimensions at the same time.
Cools and van Praag (2000) in an interesting empirical paper are the first to formally test the
proposition that multiple objectives handicap firms. In a test using 80 Dutch firms in the 1993±
97 period the authors conclude: `Our findings show the importance of setting one single target
for value creation' (emphasis in original).
5
I would like to thank David Rose for suggesting this simple and more descriptive term for
value maximising. See his paper (Rose, 1999).
The Corporate Objective Function 301
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Michael C. Jensen
out above, having a single objective does not mean that individuals or firms care only
about one thing. This single objective will always be a complicated function of many
different goods or bads.)
The short answer to the question of the definition of better is that 200 year's worth
of work in economics and finance indicate that social welfare is maximised when all
firms in an economy maximise total firm value. The intuition behind this criterion is
simply that (social) value is created when a firm produces an output or set of outputs
that are valued by its customers at more than the value of the inputs it consumes (as
valued by their suppliers) in such production. Firm value is simply the long-term
market value of this stream of benefits.
When monopolies or externalities exist the value-maximising criterion does not
maximise social welfare. By externalities we mean situations in which the decision-maker
does not bear the full cost or benefit consequences of his or her choices, water and air
pollution are classic examples. But the solution to these problems lies not in telling firms
to maximise something else, but in defining and assigning the alienable decision rights
necessary to eliminate the externalities. (Under the Coase Theorem we know externalities
can exist only if some alienable decision rights are not defined or assigned to someone in
the private economy, (see Coase 1960; Jensen and Meckling 1992)).
6
Maximising the total market value of the firmÐ that is the sum of the market values
of the equity, debt and any other contingent claims outstanding on the firmÐis one
objective function that will resolve the tradeoff problem among multiple constitu-
encies. It tells the firm to spend an additional dollar of resources to satisfy the desires
of each constituency as long as that constituency values the result at more than a
dollar. Although there are many single-valued objective functions that could guide a
firm's managers in their decisions, value maximisation is an important one because it
leads under some reasonable conditions to the maximisation of social welfare. Let's
look more closely at this.
5. Value maximising and social welfare
5.1. Profit maximisation
Much of the discussion in policy circles over the proper corporate objective casts the
issue in terms of the conflict among various constituencies or `stakeholders' in the
corporation. The question then becomes whether shareholders should be held in
higher regard than other constituencies, such as employees, customers, creditors, and
so on. It is both unproductive and incorrect to frame the issue in this manner. The real
issue to be considered here is what firm behaviour will result in the least social
wasteÐor equivalently, what behaviour will get the most out of society's limited
resourcesÐnot whether one group is or should be more privileged than another.
To see how value maximisation leads to a socially efficient solution, let's first
consider a simpler objective function; profit maximisation in a world in which all
6
In addition, we should recognise that when a complete set of claims for all goods for each
possible time and state of the world do not exist, the social maximum will be constrained; but
this is just another recognition of the fact that we must take into account the costs of creating
additional claims and markets on time=state delineated claims. (See Arrow, 1964; Debreu,
1959).
302 Michael C. Jensen
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production runs are infinite and cash flow streams are level and perpetual. This
scenario allows us to ignore the complexity introduced by the tradeoffs between
current and future-year profits (more accurately, cash flows). Consider now the social
welfare effects of a firm's decision to take resources out of the economy in the form of
labour hours, capital, or materials purchased voluntarily from their owners in single-
price markets. The firm uses these inputs to produce outputs of goods or services that
are then sold to consumers through voluntary transactions in single-price markets.
In this simple situation a firm taking inputs out of the economy and putting its
output of goods and services back into the economy increases aggregate welfare if
the prices at which it sells the goods more than cover the costs it incurs in
purchasing the inputs. Clearly the firm should expand its output as long as an
additional dollar of resources taken out of the economy is valued by the consumers
of the incremental product at more than a dollar. Note that the difference between
these revenues and costs is profits. This is the reason (under the assumption there
are no externalities or monopolies)
7
that profit maximisation leads to an efficient
social outcome.
8
Because the transactions are voluntary, we know that the owners of inputs value
them at a level less than or equal to the price the firm pays or they wouldn't sell them.
Therefore, as long as there are no negative externalities in the input factor markets, the
opportunity cost to society of those inputs is no higher than the total cost to the firm
of acquiring them. I say `no higher' because some suppliers of inputs to the firm are
able to earn `rents' by obtaining prices higher than the value of the goods to them. But
such rents do not represent social costs. Likewise, as long as there are no externalities
in the output markets, the value to society of the goods and services produced by the
firm is at least as great as the price the firm receives for the sale of those goods and
services. If this were not true, the individuals purchasing them would not do so. Again,
as with producer surplus on inputs, the benefit to society is higher to the extent that
consumer surplus exists (that is, to the extent that some consumers are able to
purchase the output at prices lower than the value to them).
Therefore, when the firm acquires an additional unit of any input (or inputs) to
produce an additional unit of any output, it increases social welfare at least by the
amount of its profit Ð the difference between the value of the output and the cost of
the input(s) required in producing it.
9
The signals to the firm are clear: continue to
7
By externalities I mean situations in which the full social cost of an action is not borne by the
firm or individual that takes the action. Examples are cases of air or water pollution in which a
firm adds pollution to the environment without having to purchase the right to do so from the
parties giving up the clean air or water. There can be no externalities as long as alienable
property rights in all physical assets are defined and assigned to some private individual or firm.
See (Jensen and Meckling, 1992)
In the case of a monopoly, profit maximisation leads to a loss of social product because the
firm expands production only to the point where an additional dollar's worth of inputs
generates incremental revenues equal to a dollar, not where consumers value the incremental
product at a dollar. In this case the firm produces less of a commodity than that which would
result in maximum social welfare.
8
I am indebted to my colleague George Baker for this simple way of expressing the social
optimality of profit maximisation.
9
Equality holds only in the special case where consumer and producer surpluses are zero, and
there are no externalities or monopoly.
The Corporate Objective Function 303
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Michael C. Jensen
expand purchases of inputs and sell the resulting outputs as long as an additional
dollar of inputs generates sales of at least a dollar.
5.2. Value and tradeoffs through time
In a world in which cash flow, profit, and cost flows are not uniform over time, we
must deal with the tradeoffs of these items through time: for example, when capital
investment comes in lumps that have to be funded up front, while production occurs
in the future. Knowing whether society will be benefited or harmed requires knowing
whether the future output will be valuable enough to offset the cost of having people
give up their labour, capital, and material inputs in the present. Interest rates give us
the answer to this. Interest rates tell us the cost of giving up a unit of a good today for
receipt at some time in the future. So long as people take advantage of the opportunity
to borrow or lend at a given interest rate, that rate determines the value of moving a
marginal dollar of resources (inputs or consumption goods) forward or backward in
time.
The value one year from now of a dollar today saved for use one year from now is
thus $1 Â (1 r), where r is the interest rate. Alternatively, the value today of a dollar
of resources to be received one year from now is its present value of $1=(1 r). In this
world an individual is as well off as possible if his or her wealth, measured by the
discounted present value of all future claims, is maximised.
When we add uncertainty nothing of major importance is changed in this
proposition as long as there are capital markets in which the individual can buy and
sell risk at a given price. In this case it is the risk-adjusted interest rate that is used in
calculating the market value of risky claims. The corporate objective function that
maximises social welfare thus becomes `maximise total firm market value'. It tells
firms to expand output and investment to the point where the market value of the firm
is at a maximum.
10
6. Stakeholder theory
To the extent that stakeholder theory argues that firms should pay attention to all
their constituencies, the theory is unassailable. Taken this far stakeholder theory is
completely consistent with value maximisation which implies that managers must pay
attention to all constituencies that can affect the firm.
But, there is more to the stakeholder story than this. Any theory of action must
tell the actors, in this case managers and boards of directors, how to choose among
multiple competing and inconsistent constituent interests. Customers want low
prices, high quality, expensive service, etc. Employees want high wages, high quality
working conditions, and fringe benefits including vacations, medical benefits,
pensions, and the rest. Suppliers of capital want low risk and high returns.
Communities want high charitable contributions, social expenditures by firms to
10
I shall not go into the details here, the same criterion applies to all organisations whether they
are public corporations or not. Obviously, even if the financial claims are not explicitly valued
by the market, social welfare will be increased as long as managers of partnerships or non-
profits increase output so long as the imputed market value of claims on the firm continue to
increase.
304 Michael C. Jensen
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Michael C. Jensen
benefit the community at large, stable employment, increased investment, and so on.
And so it goes with every conceivable constituency. Obviously any decision
criterionÐand the objective function is at the core of any decision criterionÐmust
specify how to make the tradeoffs between these often conflicting and inconsistent
demands.
6.1. The specification of tradeoffs and the incompleteness of stakeholder theory
As I've said before, value maximisation (or value seeking) provides the following
answer to the tradeoff question: spend an additional dollar on any constituency to the
extent that the long-term value added to the firm from such expenditure is a dollar or
more.
Stakeholder theory as stated by Freeman (1984), Clarkson (Principles of
Stakeholder Management, 1999) and others contains no conceptual specification of
how to make the tradeoffs among stakeholders that must be made. This makes the
theory damaging to firms and to social welfare, and it also reveals a reason for its
popularity.
6.2. Implications for managers and directors
Because stakeholder theory provides no criteria for what is better or what is worse, it
leaves boards of directors and executives in firms with no principled criterion for
problem solving. Firms that try to follow the dictates of stakeholder theory will
eventually fail if they are competing with firms that are behaving so as to maximise
value. If this is true, why do so many managers and directors of corporations embrace
stakeholder theory?
One answer lies in their own personal short run interests. Because stakeholder
theory provides no definition of better, it leaves managers and directors unaccoun-
table for their stewardship of the firm's resources. With no criteria for performance,
managers cannot be evaluated in any principled way. Therefore, stakeholder theory
plays into the hands of self-interested managers allowing them to pursue their own
interests at the expense of society and the firm's financial claimants. It allows
managers and directors to invest in their favourite projects that destroy firm-value
whatever they are (the environment, art, cities, medical research) without having to
justify the value destruction. And this can be true even though managers may not
recognise consciously that adopting stakeholder theory leaves them unaccountable. By
expanding the power of managers in this unproductive way, stakeholder theory
therefore increases agency costs in the economic system. Viewed in this way it is not
surprising that many managers like it.
By gutting the foundations on which the firm's internal control systems could
constrain managerial behaviour, stakeholder theory gives unfettered power to
managers to do almost whatever they want, subject only to constraints by the
financial markets, the market for control, and the product markets. Thus, it is not
surprising that we find stakeholder theory used to argue for governmental restrictions
on financial markets and the market for corporate control. These markets are driven
by value maximisation and will limit the damage that can be done by managers who
adopt stakeholder theory. Current pressures for restrictions on global trade as well as
environmental campaigns illustrate use of the stakeholder argument to restrict
product-market competition as well.
The Corporate Objective Function 305
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Michael C. Jensen
6.3. Implications for the power of special interests
In addition, stakeholder theory plays into the hands of special interests who wish
to use the resources of firms for their own ends. With the widespread failure of
centrally planned socialist and communist economies, those who wish to use non-
market forces to reallocate wealth find great solace in the playing field that
stakeholder theory opens to them. Stakeholder theory gives them the appearance
of legitimate political access to the sources of decision making power in
organisations, and it deprives those organisations of a principled basis for
rejecting those claims. The result is to undermine the foundations that have
enabled markets and capitalism to generate wealth and high standards of living
worldwide.
If widely adopted, stakeholder theory will reduce social welfare even as its
advocates claim to increase it Ð just as in the failed communist and socialist
experiments of the last century. And, as I pointed out earlier, stakeholder theorists
will often have the active support of managers who wish to throw off the constraints
on their power provided by the value-seeking criterion and its enforcement by
capital markets, the market for corporate control, and product markets.
11
Indeed
we have seen and will continue to see more political action limiting the power of
these markets to constrain managers. And such actors will continue using the
arguments of stakeholder theory to legitimise their positions. Exposing the logical
fallacy of these arguments will reduce their effectiveness. But there is something
deeper in the evolution of the human psyche that drives the attraction to
stakeholder theory.
7. Conflicts between family and markets and their role in stakeholder theory
Stakeholder theory taps into the deep emotional commitment of most individuals to
the family and tribe. For tens of thousands of years those of our ancestors who had
little respect for or loyalty to the family, band, or tribe probably did not survive. In the
last few hundred years of humanity's existence however, we have experienced the
emergence of a market exchange system of prices and the private property rights on
which they are based. This system for voluntary and decentralised coordination of
human action has brought huge increases in the welfare of humans and in their
freedom of action.
As Frederick Hayek points out, however, we are generally unaware of the
functioning of these market systems because no single mind invented or designed
themÐand because they work in very complicated and subtle ways.
We are ledÐ for example, by the pricing system in market exchangeÐ to do
things by circumstances of which we are largely unaware and which produce
results that we do not intend. In our economic activities we do not know the
11
Such stakeholder arguments for example, played an important role in persuading the US
courts and legislatures to limit hostile takeovers through legalisation of poison pills and state
control shareholder acts.
306 Michael C. Jensen
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Michael C. Jensen
needs which we satisfy nor the sources of the things which we get. Almost all
of us serve people whom we do not know, and even of whose existence we are
ignorant; and we in turn constantly live on the services of other people
of whom we know nothing. All this is possible because we stand in a
great framework of institutions and traditionsÐeconomic, legal, moral Ð
into which we fit ourselves by obeying certain rules of conduct that we
never made, and which we have never understood in the sense in which
we understand how the things that we manufacture function. (Hayek,
1988, p. 14)
Moreover, these systems operate in ways that limit the options of the small group or
family, and these constraints are not well understood or instinctively welcomed by
individuals. Many people are drawn to stakeholder theory through their evolutionary
attachment to the small group and the family. As Hayek puts it:
Constraints on the practices of the small group, it must be emphasised and
repeated, are hated. For, as we shall see, the individual following them, even
though he depends on them for life, does not and usually cannot understand how
they function or how they benefit him. He knows so many objects that seem
desirable but for which he is not permitted to grasp, and he cannot see how other
beneficial features of his environment depend on the discipline to which he is
forced to submitÐa discipline forbidding him to reach out for these same
appealing objects. Disliking these constraints so much, we hardly can be said to
have selected them; rather, these constraints selected us: they enabled us to
survive. (Hayek, 1988, pp. 13, 14, italics in original).
Thus we have a system in which human beings must simultaneously exist in two
orders, what Hayek calls the micro-cosmos and that of the macro-cosmos.
Moreover, the structures of the extended order are made up not only of
individuals but also of many, often overlapping, suborders within which old
instinctual responses, such as solidarity and altruism, continue to retain some
importance by assisting voluntary collaboration, even though they are
incapable, by themselves, of creating a basis for the more extended order.
Part of our present difficulty is that we must constantly adjust our lives, our
thoughts and our emotions, in order to live simultaneously within different
kinds of orders according to different rules. If we were to apply the
unmodified, uncurbed rules of the micro-cosmos (i.e., of the small band or
troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as
our instincts and sentimental yearnings often make us wish to do, we would
destroy it. Yet if we were always to apply the rules of the extended order to our
more intimate groupings, we would crush them. So we must learn to live in two
sorts of worlds at once. To apply the name `society' to both, or even to either, is
hardly of any use, and can be most misleading. (Hayek, 1988, p. 18, italics in
original).
Stakeholder theory taps into this confusion and antagonism and relaxes constraints
on the small group in ways that are damaging to society as a whole and (in the long
run) to the small group. Such deeply rooted and generally unrecognised conflict
The Corporate Objective Function 307
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Michael C. Jensen
between allegiances to family and tribe and what is good for society as whole has a
major impact on our evolution. And in this case, the conflict does not operate for the
good.
12
8. Enlightened value maximisation and enlightened stakeholder theory
There is a way out of the conflict between value maximising and stakeholder theory
for those interested in improving management, organisational governance, and
performance. It lies in melding together what I call enlightened value maximisation
and enlightened stakeholder theory.
8.1. Enlightened value maximisation
Enlightened value maximisation recognises that communication with and motivation
of an organisation's managers, employees, and partners is extremely difficult. What
this means in practice is that if we tell all participants in an organisation that its sole
purpose is to maximise value, we would not get maximum value for the organisation.
Value maximisation is not a vision or a strategy or even a purpose, it is the scorecard
for the organisation. We must give people enough structure to understand what
maximising value means so that they can be guided by it and therefore have a chance
to actually achieve it. They must be turned on by the vision or the strategy in the sense
that it taps into some desire deep in the passions of human beingsÐ for example a
desire to build the world's best automobile or to create a movie or play that will affect
humans for centuries. All these can be consistent with value maximisation.
There is a serious semantic issue here. Value maximising tells the participants in an
organisation how they will assess their success in achieving a vision or in implementing
a strategy. But value maximising says nothing about how to create a superior vision or
strategy. And value maximising says nothing to employees or managers about how to
find or establish initiatives or ventures that create value. It only tells us how we will
measure success in the activity.
Defining what it means to score a goal in football or soccer, for example, tells the
players nothing about how to win the game. It just tells them how the score will be
kept. That is the role of value maximisation in organisational life. It doesn't tell us
how to have a great defence or offence, or what kind of plays to create or practice, or
12
It is useful here to briefly summarise the positive arguments (those refutable by empirical
date) and normative arguments (those propositions that say what should be rather than what is
in the world) I have made thus far. I have argued that firms that follow stakeholder theory as it
is generally advocated will do less well in the competition for survival than those who follow a
well-defined single-valued objective such as value creation. I have argued positively that if firms
follow value creation social welfare will be greater and normatively that this is desirable. I have
also argued positively that the self-interests of managers and directors will lead them to prefer
stakeholder theory because it increases their power and means they cannot be held accountable
for their actions. I have also argued positively that the self-interest of special interest groups
who wish to acquire legitimacy in corporate governance circles to enhance their influence over
the allocation of corporate resources will advocate the use of stakeholder theory by managers
and directors. This leads to the normative conclusion that society will be worse off if they are
successful. For a discussion of the role of normative, positive (or instrumental), and descriptive
theory in the literature on stakeholder theory (see Donaldson and Preston, 1995).
308 Michael C. Jensen
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Michael C. Jensen
how much to train and practice, or whom to hire, and so on. All of these critical
functions are part of the competitive and organisational strategy of any team or
organisation. Adopting value creation as the scorekeeping measure does nothing to
relieve us of the responsibility to do all these things and more in order to survive and
dominate our sector of the competitive landscape.
This means, for example, that we must give employees and managers a structure
that will help them resist the temptation to maximise the short-term financial
performance (usually profits, or sometimes even more silly, earnings per share) of the
organisation. Such short-term profit maximisation is a sure way to destroy value. This
is where enlightened stakeholder theory can play an important role. We can learn
from the stakeholder theorists how to lead managers and participants in an
organisation to think more generally and creatively about how the organisation's
policies treat all important constituencies of the firm. This includes not just financial
markets, but employees, customers, suppliers, the community in which the
organisation exists, and so on.
Indeed, it is obvious that we cannot maximise the long-term market value of an
organisation if we ignore or mistreat any important constituency. We cannot create
value without good relations with customers, employees, financial backers, suppliers,
regulators, communities, and so on. But having said that, we can now use the value
criterion for choosing among those competing interests. I say competing interests
because no constituency can be given full satisfaction if the firm is to flourish and
survive. Moreover, we can be sure, externalities and monopoly power aside, that using
this value criterion will result in making society as well off as it can be.
Resolving externality and monopoly problems is the legitimate domain of the
government in its rule-setting function. Those who care about resolving monopoly
and externality issues will not succeed if they look to firms to resolve these issues
voluntarily. Firms that try to do so either will be eliminated by competitors who
choose not to be so civic minded, or will survive only by consuming their economic
rents in this manner.
8.2. Enlightened stakeholder theory
Enlightened stakeholder theory is easy to explain. It can take advantage of most that
stakeholder theorists offer in the way of processes and audits to measure and evaluate
the firm's management of its relations with all important constituencies. Enlightened
stakeholder theory adds the simple specification that the objective function of the firm
is to maximise total long-term firm market value. In short, changes in total long term
market value of the firm is the scorecard by which success is measured.
I say long-term market value to recognise that it is possible for markets not to know
the full implications of a firm's policies until they begin to show up in cash flows over
time. In such a case the firm must lead the market to understand the full value
implications of its policies, then wait for the market to catch up and recognise the real
value of its decisions as they become evidenced in market share, employee loyalty, and
finally cash flows and risk. Value creation does not mean succumbing to the vagaries
of the movements in a firm's value from day to day. The market is inevitably ignorant
of many managerial actions and opportunities, at least in the short-run. It is our job as
directors, managers, and employees to resist the temptation to conform to the
pressures of equity and debt markets when those markets do not have the private
competitive information that we possess.
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Michael C. Jensen
In this way enlightened stakeholder theorists can see that although stockholders are
not some special constituency that ranks above all others, long-term stock value is an
important determinant (along with the value of debt and other instruments) of total
long-term firm value. They would see that value creation gives management a way to
assess the tradeoffs that must be made among competing constituencies, and that it
allows for principled decision making independent of the personal preferences of
managers and directors. Importantly, managers and directors also become accoun-
table for the assets under their control, because the value scorecard provides an
objective yardstick against which their performance can be evaluated.
9. Measurability and imperfect knowledge
It is worth noting that none of the above arguments depend on value being easily
observable. Nor do they depend on perfect knowledge of the effects on value of
decisions regarding any of a firm's constituencies. The world may be complex and
difficult to understand. It may leave us in deep uncertainty about the effects of any
decisions we may make. It may be governed by complex dynamic systems that are
difficult to optimise in the usual sense. But that does not obviate the necessity of
making choices (decisions) on a day-to-day basis. And to do this in a purposeful way
we must have a scorecard.
The absence of a scorecard makes it easier for people to engage in intense value
claiming activities at the expense of value creation. We can take random actions, and
we can devise decision rules that depend on superstitions. All of these are unlikely to
serve us well in the competition for survival.
We must not confuse optimisation with value creation or value seeking. To create
value we need not know exactly where and what maximum value is, but only how to
seek it, that is how to institute changes and strategies that cause value to rise. To
navigate in such a world in anything close to a purposeful way, we have to have a
notion of `better', and value seeking is such a notion. I know of no other scorecard
that will score the game as well as this one. It is not perfect, but that is the nature of
the world. We can tell (even if not perfectly) when we are getting better, and when we
are getting worse.
If we are to pay any attention to stakeholder theorists, they must offer at least some
way to tell when we are `better' off other than by reference to their own personal
values. In the meantime we should use their theory only in the form of enlightened
stakeholder theory as I describe above. In this way it is a useful complement to
enlightened value maximising (or value seeking or value creating, for those who argue
the world is too complex to maximise anything).
10. The `Balanced Scorecard'
The Balanced Scorecard is the managerial equivalent of stakeholder theory. Like
stakeholder theory, the notion of a `balanced' scorecard appeals to many, but it is
similarly flawed. When we use the dozen or two measures on the balanced scorecard
to measure the performance of people or units, we put managers in the same situation
as managers trying to manage under stakeholder theory. We are asking them to
maximise in more than one dimension at a time with no idea of the tradeoffs between
the measures. As a result, purposeful decisions cannot be made.
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