Proceedings of 32nd International Business Research Conference
23 - 25 November, 2015, Rendezvous Hotel, Melbourne, Australia
ISBN: 978-1-922069-89-4
Should Corporations Continue to Pursue Profitability or Does
Sustainability Matter?
Eunsup Daniel Shim
Abstract
As evidenced by the recurring economic and financial crises and market failures, the
society calls for a new paradigm, reexamination of capitalism, the market economy and
corporate governance. It has long been argued that the major objective of the corporation
is to maximize shareholders’ wealth. The idea of shareholder wealth maximization
demands short-term profit maximization. In order to maximize profit, corporations tend to
take a short-term planning horizon and focus on the short-term results. These short-term
opportunistic behaviors results in unethical behaviors, illegal actions and numerous
corporate failures including Enron, Arthur Anderson, and Global Crossing.
In this paper, I argue that corporations narrowly focused on short-term profits, can make
business decisions that could be detrimental to long-run sustainability. To increase shortterm profits, for example, firms might not be making adequate investments in Research
and Development and might be producing potentially harmful products, and might be
ignoring environmental, external costs. Recent management theories emphasize
sustainability over short-run profitability and agues for the stakeholder’s perspective over
the shareholder’s maximization theory. The stakeholder perspective argues that the
corporation exists not only for the benefit of shareholders but also for that of other
stakeholders including employees, suppliers, customers, and to some extent, for the
benefits of society. The stakeholder perspective promotes ethical business decisionmaking and focuses on long-run sustainability by emphasizing a stable customer base,
employee well-being, a better corporate image, and corporate social responsibility. Ethical
decision-making includes a fair and equitable distribution of corporate profits, empowering
business decisions and stabilizing employment. In a new and contemporary economy, the
stakeholder perspective provides a better view of managing corporations by promoting long
run focused, ethical decision-making and by paying attention to “common good”. This will
ultimately help in improving profitability and long-run sustainability.
___________________
Dr. Eunsup Daniel Shim, Cahir and Professor of Accounting, Department of Accounting and Information
Systems, John F. Welch College of Business, Sacred Heart University, 5151 Park Avenue, Fairfield, CT
06824, USA, Email: shime@sacredheart.edu, Phone: 203-371-7873 (o), 203-450-2300 (c)