What should a company's objective be? Simply to maximize returns for shareholders by increasing the intrinsic value of a business, or should the company acknowledge the interests of other stakeholders—employees, customers, society—in its decision making? Over the past few years, the argument in favor of maximizing returns has taken more than a few blows because of the excesses of the dot-com boom, the stock market's obsession with short-term earnings, and the executive greed and scandals carried out in the name of maximizing shareholder value.

For McKinsey's corporate-finance practitioners, the tumultuous recent past has reinforced two fundamental beliefs. The first is that the business of business is precisely to maximize its shareholder value by increasing its intrinsic value. The second is that maximizing value involves managing both performance in the short term and the company's long-term health.

The fact is that the more shareholder value a company creates in an effectively regulated market, the better the company serves all its stakeholders. Research by McKinsey's corporate-performance center has demonstrated the wider stakeholder benefits of managing for long-term-value creation: the companies that created the most shareholder value over the past 15 years also created the most employment and invested the most in R&D....