It is basically a result of agency theory (principal agent problem) in the typical setting of economic theory (no transaction costs, bla bla bla).
The question is what a corporation should do, which aims it should strive for. That's an extremely difficult question, in particular if there are many owners ("principals", shareholders) who have different utility functions (goals), who are furthermore distinct from the CEO and managers actually running the business ("agents"), who might have their own interests (enlarging their fiefdom, job security, what have you).
The theoretical solution is to say: maximise the net present value of the firm (which goes to the shareholders, after paying debt), and then they can decide what to do with it, and pursue their own goals. Now, this makes some sense in a no-transaction cost world - if shareholders care about workers and peace and the sick, they can use the shareholder value created, and put some of it in, dunno, charity and health insurances, and what have you.
Thus, goal should be shareholder value maximisation, and to get the agents on board, you "align their interests" by incentives, specifically by giving the CEO options.
(Note that shareholder value maximisation is not the same as profit maximisation, and definitely not the same as short-term profit maximisation - the value of the shares is theoretically the sum of discounted cashflows in all eternity).
The other argument, of course, is that shareholders care only about maximisation of the value of their share, and thus a firm which does not pursue shareholder value maximisation will lose shareholders and go out of business.
Both arguments are not all bad, but of course the real world is much more complicated. Shareholders might have more goals than maximising the value of their shares (not in Econ 101, of course). A company might be in a much better position to achieve some of those aims directly, rather than via the circuitous route of handing it to the shareholder and them pouring it back into the game.
At any rate, the notion of shareholder value maximisation is not some God-given absolute truth, but one proposed solution for specific problems within a specific theoretic framework, and it's not clear at all that it's always optimal, and should not be reflexively trotted out when talking about corporations, and not serve as a defense for corporations acting badly.
It is basically a result of agency theory (principal agent problem) in the typical setting of economic theory (no transaction costs, bla bla bla).
The question is what a corporation should do, which aims it should strive for. That's an extremely difficult question, in particular if there are many owners ("principals", shareholders) who have different utility functions (goals), who are furthermore distinct from the CEO and managers actually running the business ("agents"), who might have their own interests (enlarging their fiefdom, job security, what have you).
The theoretical solution is to say: maximise the net present value of the firm (which goes to the shareholders, after paying debt), and then they can decide what to do with it, and pursue their own goals. Now, this makes some sense in a no-transaction cost world - if shareholders care about workers and peace and the sick, they can use the shareholder value created, and put some of it in, dunno, charity and health insurances, and what have you.
Thus, goal should be shareholder value maximisation, and to get the agents on board, you "align their interests" by incentives, specifically by giving the CEO options.
(Note that shareholder value maximisation is not the same as profit maximisation, and definitely not the same as short-term profit maximisation - the value of the shares is theoretically the sum of discounted cashflows in all eternity).
The other argument, of course, is that shareholders care only about maximisation of the value of their share, and thus a firm which does not pursue shareholder value maximisation will lose shareholders and go out of business.
Both arguments are not all bad, but of course the real world is much more complicated. Shareholders might have more goals than maximising the value of their shares (not in Econ 101, of course). A company might be in a much better position to achieve some of those aims directly, rather than via the circuitous route of handing it to the shareholder and them pouring it back into the game.
At any rate, the notion of shareholder value maximisation is not some God-given absolute truth, but one proposed solution for specific problems within a specific theoretic framework, and it's not clear at all that it's always optimal, and should not be reflexively trotted out when talking about corporations, and not serve as a defense for corporations acting badly.