Is it correct to consider profit and company growth as the main objective of a public quoted company?

Answer 1

Organization as a going concern does not exist in a vacuum. Beyond its interconnected resources, every organization needs direction in terms of where the managers want it to go, and how the manager would wish the company to develop. This strategic feature of an organization really relates to the mission of the organization and possibly a visionary statement concerning the future of the organization. Managers at all levels in every organization set a number of objectives which the company strives to achieve. Whilst doing this however, consideration should be made to the overall corporate objectives of the company. Below, though not exhaustive, is a list of general corporate objectives organisations aim at. Ø Profit Ø Shareholders' wealth Ø Company growth Ø Social responsibility Ø Employment creation and development Ø Customer satisfaction Ø Company continuity To this, Ackoff (1986) in Thompson J. L. Strategic Management (2004) argues that though a company exists for purposes of profit and growth, these two main objectives are both means to other ends rather than objectives in themselves. He further argues that profit is necessary for the survival of a business enterprise but may neither be the reason for which the business is formed nor the reason why it has to stay in existence. Instead, Ackoff contends, that those who manage organisations do so primarily to provide themselves with the quality of work life and standard of living they desire. Their behaviour can be better understood by assuming this than by assuming that their objective is to maximize profit or growth. Against this background, it is important for the CEO to, among the profit and the company growth objectives of the company, consider the investors or the shareholders, customers, supplies and distributor as well as other employees of the company. Shareholders wealth Public quoted companies are owned by shareholders and therefore the continuous survival of the company means that the objectives of the company should always relate to and meet the expectations of the shareholders. Thus, the influence of shareholders can have a drastic effect on the company. To this extent, some public companies - for survival - sometimes seek short-term profits to please their major institutional shareholders. This in my opinion is a bad management practice especially in modern management, since for companies to become more effective competitors in today's global market, the profit focus should be moved from pleasing shareholders in the short-term to considering the long-term and the interest of all stakeholders of the company. In the United Kingdom, for instance, Constable (1980) stated: 'Britain's steady relative industrial decline over the past 30 years is related to an insistence on setting purely financial objectives which have been operated in relatively short time scales'. These financial objectives were particularly targeted at pleasing some major shareholders whose actions and inactions might affect the company negatively. In Ghana moreover, pension funds relatively controls the largest companies through the sizeable number of shares they owe in these large companies. As such these individual pension fund managers are very instrumental in determining the outcome of a decision in the companies they owe shares in. Satisfying that segment of investors therefore would not be the solution to the company's continuous survival. It is however important to note that in Japan and Germany, shareholders do not exert pressure on their company as they do in the UK. Social Responsibility Perhaps the most important non financial objective of every company to ensure its survival has to do with its social responsibility. Social responsibilities are strategies and actions that can be seen to be in the wide and best interests of society in general and the environment as a whole. Whilst in some countries the issues of social responsibility are a legislative issue, very often they are voluntary actions in some countries. There are however, a number of ways in which a firm can behave responsibly in the interests of the society, for which as a CEO, I may opt for some or all: · Community action: this aspect of the social responsibility has a very broad category with numerous opportunities, ranging from charitable activities to concerted action to promote industry and jobs in the communities in which the company is situated. · Industry location: Similar to the above, organisations may locate new plants in areas of high unemployment for various reasons other than for profits. While aspects of social responsibility as the corporate objective may be involved, the decision may well be more economic. In developing countries such as Ghana, grants, tax exemption as well as rate concessions may be an important deciding factor of such location. · Product safety: some social responsibility issues take the form of product safety. This can be the result of design or production and includes aspects of supply and supplier selection to obtain safe materials or components. In most economies, product safety is influenced to a large extent by legislation. However, organisations in this category in most of these economies may build in more safety features than the law requires. For instance, a car manufacturing company such as Volvo which is promoted and perceived as a relatively safe car falls into this category. Sometimes moreover, the safety is reflected in perceived higher quality, which adds value that the customer is willing to pay a premium for, but at other times it will be the result of the organization's choice to sacrifice some potential profit. · Other environmental concerns: these include recycling, waste disposal, protecting the ozone layer and energy efficiency. In Ghana for example, the first 50 days after the launching of Mobile Telephone Network (MTN) were dedicated not only to an extensive advertising period but the company further embarked on a waste disposal policy. The environmental aspect of the social responsibility concept to Unilever is also in the form of packaging. Upon realizing that smaller and lighter packages use fewer raw materials and cheaper to transport, Unilever Ghana limited for some time now has introduced a more concentrated version to its detergent brands which hitherto, many consumers perceived as poor value for money because the content of the product forms just a small proportion to the total weight of the product. Soft drink manufacturer such as Coca Cola has also switched to fully recyclable aluminum cans and plastic bottles that are easily disposable. Employment Creation and development The existence of some companies is not ultimately for profits but to also create employment opportunities. For instance, in response to a question regarding the objectives for the establishment of Ninash Company Ghana Limited, a synthetic hair manufacturing company, the Managing Director said 'the desire to create employment opportunities for the unemployed and to save the country's scarce foreign exchange resources led to the transformation of Ninash Enterprise into a Limited Liability Company in February 1994 and was registered under its current business name, to undertake the manufacture and distribution of varieties of hair pieces and wigs. The company has since its inception provided jobs for a number of youths who were previously on the streets without any skills'. To this end, the staff strength of Ninash Company (Ghana) Limited according to the managing director has grown steadily over the last ten years. Starting with 12 employees in 1992, it grew to 50 employees in 1995; and to 100 employees in 2000. By 2002, the company employed 300 workers, 70% of which were females. At present, the staff strength is 506 employees in its seven sections. These sections are factory hands, sectional heads, drivers, security personnel, hairdressers, support staff and management staff. Customer satisfaction To compete effectively in the global market place today, a company has to be more customer-oriented other than the product-oriented philosophy that used to exist. Customers today are more sophisticated and value-maximizers. They form an expectation of value and act on it. Today, buyers buy products from the firm that they perceive to offer the highest customer-delivered value. Losing profitable customers can dramatically affect the company's profits. It is therefore important for companies to have an extensive corporate policy towards the retention of customers. It is sometimes said in marketing literatures that the cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. To keep customers happy however, marketers can add financial or social benefits to products, or create structural ties between the company and its customers. Today's companies have no choice but to implement total quality management programmes if they are to remain solvent and profitable. Total quality is one of the key to value creation and customer satisfaction. WHERE IS THE EXPLANATION FOR 'COMPANY CONTINUITY'? Conclusion Every organization exists for a purpose. The most important resources of every organization are its human resources part of which form the individual managers or the Chief Executive Officers. It is therefore feasible to argue that organisations as a whole have a purpose whereas the individual CEO also has his/her objectives. Some of the purposes for the existence of a company include making profit, maximizing shareholders' wealth, and company growth, fulfilling its social responsibility, creating and developing employment, customer satisfaction and letting the company function as a going concern. The objective of the CEO however, is to strive to achieve all these corporate objectives. A profit in my view as the CEO is the most important objective to achieving the other corporate objectives. References: 1. Thompson J. L. Strategic Management (2004) 4th edition - Thompson publication. 2. Thompson, A. A., Gamble J. E., Strickland A. J. Strategy-Winning in the Marketplace (2006) 2nd edition - McGraw-Hill Irwin publication. 1. Kotler P. Marketing Management (2003) 11th edition - Prentice hall publication.