As I was saying before in my post yesterday about how much I'm rolling my eyes at 'investor wealth maximisation', I have this urge to expand on that. Yes, it IS a company's responsibility and purpose to maximise shareholders wealth because that is what drives the market. If people do not have faith in a corporation to look after and do the best they can with their money, then no investments would take place. What's his name... Er, I forget. Some management theorist, starting with an M, said that the sole purpose of companies is to maximise profits and maximise profits only. That is just what we've been doing in finance this semester. Calculating the Net Present Values of investment projects, comparing them, and choosing the one with the highest return. Fair enough. But what about corporate responsibility?

Most of the investment projects in which we have to analyse have to do with factories, machinery and land. What happens if one project yields a higher expected return but also at the same time does more damage to the environment and/or people? There has been no mention whatsoever by the lecturer or our course notes about such implications and that is what peeves me off. We may still be doing just a 2nd year finance subject and therefore should just stick to the basics of finance but these are things that we, as students, should think about at this early stage. C'mon, we are the future directors! Y'know, it isn't all just about wealth maximisation. Look what happened to Shell. Look what happened to Nestle. Look what happened to a LOT of multi national corporations who failed to take any social responsibility and observe some self regulation because they wanted to maximise their profits.

For those who don't know what happened with Shell, well they had their oil rigs and processing plants (I think) in Nigeria. Shell decided that it was okay to lay their pipelines and dispose of their waste in and around the native people's villages because it would be too costly otherwise. Children dangerously played amongst these hazards of bursting and leaking pipes and the oil spills did a lot of harm to its surrounding environment where it prevented the growth of crops. This only drove the people further into the depths of their poverty and Shell refused to compensate. This started a very peaceful protest where everyone from the villages came together to stand up for their rights. Whilst out protesting, Shell had the Nigerian police go to their villages and destroyed their homes.

With Nestle, they wanted to increase sales and decided to take advantage of uneducated people in developing countries. It promotes itself as a caring, nurturing organisation. The company symbol is a mother bird feeding its babies in the nest. In Nestles 1993 Annual Report it says "The symbol simultaneously evokes security, maternity and affection, nature and nourishment, family and tradition. Today it is the central element in Nestle's corporate identity." Despite these fine words Nestle has consistently given free samples of breastmilk substitutes to maternity clinics in developing countries, and offered gifts and cash to community based health workers and nurses, as incentives to them to sell discounted baby formula. Babies in developing countries who are given milk formula instead of breastmilk are at grave risk of contracting diarrhoea, mainly because water supplies to mix the powder are not safe. This is not the only danger. Once upon leaving the hospital, the baby has acquired the habbit of drinking milk formula and will not drink breastmilk. Families in such countries mostly cannot afford to buy sufficient milk powder so they dilute the formula giving rise to malnutrition and around half a million babies die each year because of this.

The way I see my lecturer (who screams and talks like Hitler with that screaming and yelling and arms waving everywhere and spit coming out of his mouth like a shower head) go on about shareholders wealth being the most important thing and that directors of companies should not accept ANY investment that lies below the efficient frontier is just rediculous to me. I'm not a qualified financial advisor yet but I don't believe there is such a thing. If you want to take, you gotta give and giving doesn't mean just bearing the risk of the investment.

Choosing the highest returns all the time with no consideration on what is unconscionable will only lead to worser things in the future. When you do irresponsible things, people will look down on you or so I hope. Some people just don't care though, its all money money money. I like to believe that there are many investors who will be aware of the activities of corporations and not invest in those who are not self regulating. Also, I believe that when a company is being socially and environmentally irresponsible, shareholders may find it took risky and pull out. When this happens, their share price will fall and they will lose one of their major capital sources. GREAT!

So research a company really well before you buy their stocks. Are they doing the right thing? I believe in karma and the company who is 'good' will end up the winner. So invest in them instead of those big meanie companies who are although very stable and run a low risk of liquidating, are doing big mean things to your fellow world citizens.