Primary Objective of Managers - Research Proposal Example

Primary Objective of Managers (Profit Maximisation) Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction In an ideal situation, the investor is more interested in making good deal from any spending. This is because being in business and something that requires spending to achieve good results, the obligation real lies on the management to come up with appropriate business strategies and business ideas so as to ensure that the business is made more lucrative. With this regard therefore agree with the statement that, “the primary objective of the management is to increase the wealth of the shareholders and the owners.” However, this should not be the only objective. This is because where the business operates, there are also other factors that can directly or indirectly have the influence on the performance of the business and of which its management should be taken more seriously apart from embarking on wealth creation as the primary objective. These factors include employees, customers and the general community in which the business operates. These factors according to Shaw (2009), can be summed together to mean corporate social responsibility (CSR) which means managing the business in such away that it produces overall positive impact to the society. The argument that the “the primary objective for the managers is to seek to maximise wealth for the shareholders and owners” is associated with Milton Friedman (1970). Even though Friedman went further to argue that this objective will be paramount as long as the business adheres to laws and ethical customs, this article will go further to argue what might have informed this assumption and what are the objectives that an organisation must seek to achieve besides wealth maximisation for the shareholders and owners. Purpose of the study The sole purpose of this article is therefore to present, a pro-argument which supports the argument that “the primary objective of the managers should be to maximise wealth for the shareholders” and thereafter present various arguments that depict that wealth maximisation is the primary objective but not the only objective by looking at how also the company should be working towards to impact positively to the community for sustainable growth and development. This is to imply that irrespective of “wealth maximisation” being the primary objective, this can only be sustained if the company is paying attention to the community wellbeing by engaging in social activities that can positively change it. Growth and expansion of business remains one of the most important objectives of the business. However, this is only possible if the business is likely to make good profits which can then be re-invested back into the business for further growth. According to Milton Friedman, making profit maximisation the primary objective is important for any business that is seeking growth and any company that defies that is subject of fail. This is after that Friedman had noted that without good profits, it was absolutely difficult for any business to grow and invest in its strategies and the consequence is that it will be less competitive in the market. With this regard therefore, profits do matter a lot for the business (Shaw 2009). This means that the business has a lot to provide much more apart from creating wealth for the owners. For example, the business has the responsibility to invest in new technology to promote creative and innovative ideas within the business. This is especially important when it comes to a time the business is expected to over superior customer experience by providing the best in terms of service, creation of more employment and also in changing the lives of people in the community. What has come to be the major feature in the contemporary markets is the struggle by different businesses trying to diversify their services and products with the intention of meeting the ever changing business demands. However, this has not been easy as the cost involved is relatively high and for a business to keep the pace with the changing business environment, profit maximisation is the prime objective. Diversification of business products and services is associated with the need to increase the company revenues and thereby improve on the company profitability level. As a matter of fact sustainable revenue growth for the business has a direct bearing on the performance of the business (Husted & de Jesus Salazar 2006). This is because after the shareholder gets their rightful potion in terms of dividends, the remaining profits are put back to business to help attain sustainable growth. According to markets authorities, all firms are expected to grow even though this is very difficult to attain without sustainable growth which comes into being as a result of increased company revenues. It is because of growth that capital markets can decide to reward or punish a firm depending on its performance in terms of growth. Any company that is poorly performing in terms of profits is likely to have low prices for its shares and this will translate into low profits for the business and consequently high cost of borrowing. In general, profit maximisation is paramount in that it can add value to investors’ money apart from ensuring that the customer needs are also met and apart from ensuring that business growth is sustained. This confirms the argument that the primary objective of the management should be maximising wealth for the shareholders and owners. However, according to Friedman there are those principles that the management must observe in the process of trying to maximise the company profits as outlined in the law and the ethical norms. Actually these are considered as supplementary objectives to the primary objective (Cosans 2009). Growth of business and society is an important objective that a business should consider to achieve. While trying to maximise profits for the business, customers are always on the focus. With this regard according to Shaw (2009), innovation and creativity in business is being encouraged so as to create processes and programs that can help improve the lives of people in which it’s operating. Research has shown that business growth is very important in achieving this outcome. To achieve growth according to Cosans (2009), Husted & de Jesus Salazar (2006), and Ferrell and Ferrell (2008), disruptive innovation is being considered as one the best strategies to apply. This is to mean that the management will stand the opportunity to maximise profits and attain sustainable growth if they only engage in disruptive innovative activities. Disruptive innovation is directly related to those strategic activities that are intended at increasing revenues avenues, developing new products and services and building alliances. Growth according to Peinado-Vara (2006), should be sought as one way of ensuring that customer value is sustained and community impacted upon positively. CSR has provided a leeway to saying that there are other numerous objectives that the businesses have a part from creating more wealth for the shareholders and businesses. According to CSR the profit maximisation is not the only objective for the business. The business according to CSR is expected to ensure that there is balance between the profit maximisation and impact on the society in terms of meeting their needs. With the emergency of CSR, human presence has got its own way to the process of developing company gaols and objectives because they have role to play in the success of the business. Compassion however, has been considered the best way to ensuring compliance with social and community and development. This is after emerging that Friedman even though tried to provide an assumption that profit maximisation should be allowed as long as the business was ethical norms and followed the prevailing laws, did not elaborate on the limits of the business in CSR. This has led to many businesses arguing that CSR as often seen by different professionals is not what it’s as different businesses have continued to pose to be doing what actually they are not. With compassion, Cosans (2009), argues that the businesses have the obligation to pay attention to those factors that are affected by its activities. Compassionate businesses are those businesses that should not only embark on profit development but also take responsibility in trying to develop those communities that are affected by its activities more especially the value chain processes. While formulating company objectives, a compassionate business is expected to take into account the impact it will have to the community and how the community should be incorporate into the overall company vision, mission, goals and objectives as well as culture, values, culture and strategy. The reason behind this kind of incorporation of the community by the business is aimed at ensuring that the global society is not suffering from its activities or rather experience positive impact. There are several values exhibited by those companies that are compassionate to CSR and they include respecting and upholding the principles of integrity, supporting human rights and society welfare by giving special attention to different groups such as company shareholders, employees of the company, the discriminated groups like women and the disabled and children, fighting global challenges such as disease, poverty, disasters and many others, helping in building the community infrastructure like schools, hospitals, sporting facilities, roads and rehabilitation sites. The other values reflected by companies that are compassionate to CSR include fighting for individuals’ freedom and liberty, responsibility in upholding best workplace practices, protecting animal rights, supporting environment sustainability and development, excellence in corporate governance and social performance. According to Ahlstrom (2010), Van Beurden & Gossling (2008) and Peinado-Vara, (2006), companies apart from taking profit maximisation forward, as the only objective ought to consider how they can incorporate the community into their goals and objectives as communities all have direct influence on their performance. This is because the quality of live in the community has direct impact on the performance of the business and its profitability. In the business world, instead of entangling to those principles that surround CSR, there are those companies that have realised the importance of incorporating the community wellbeing into their goals and objectives and they include Ford Motor Company, PepsiCo and Costco Wholesale. The Ford Motor Company is known to have contributed immensely in making the world the better place to live in. Through the Food Pantry Project for example, Ford Motor Company provides some support to food banks nationwide so as to help the provide for the needy in the community. The company has also so far sponsored projects in 44 countries from all continents. On the other PepsiCo which is known to provide most quality and health products, is recognized for engaging in community development programs. For example, the company has contributed over $16 million to victims of earthquake in Chile, Haiti and Pakistan. Finally, Costco is also among those global companies that have chosen to be compassionate with CSR by identifying the needs of the society and trying to meet them. For example, in 2007, the company created the Corporate Sustainability and Energy Group in to support community effort to environment management. The program is aimed at promoting the process of producing and consuming energy efficient products so as to protect the environment from high carbon emissions. These are just but view examples of those companies that have chosen to take an initiative to decide on they can be responsible to the society without necessarily relying on the arguments by Friedman which many companies see as lacking clarity on the extent to which the business to the society should be (Ahlstrom 2010). According to Van Beurden and Gossling (2008), and Craig (2003), social performance is imperative to the profit maximisation of the company. According to the quad, social performance helps the community improve on the quality of life which then impacts directly on the way the society perceive the company and its values. Positive image and perception by the public about the company is likely to have impact on the way the society or the community chooses to relate with the company. The four authors present social performance as the best strategy to increasing the confidence of the public in the way it handles it business activities. Profit maximisation in the current society is considered elusive in the current society. This is because as the company embarks on the journey to maximise the profits, the objective that it should consider is how they are social responsible to the public and more especially the community that impacts on its value chain. Research has shown that many of the companies that are socially responsible are more likely to succeed as opposed to those that tend put more emphasis on self-interests (Wilcke 2004). People under circumstances wish to be associated with or work for a company that they consider to be good. In the contemporary society many people are enlightened on what they should expect from the companies that they buy their services or products from. For example, the lawyers are very alert on prosecuting any company based on the kind of behaviour they demonstrate to the public and more especially when it perceives the behaviour as exploitative, harmful, irresponsible or unethical. With this regard, as many companies purpose to maximise their profits for the shareholders and the owners, they are also considering being good and being socially responsible citizens as part of the goals and objectives. This is because they plan to enhance diversity at workplace, work on ensuring employee well-being and positively impact on the community (Craig 2003). All these are done by planning to do away with sweat shop and unfair exploitation of the environment. This therefore tends to culminate profit maximisation as the only objective for the management of a given business. Actually, the idea that by Friedman that the primary of management is to maximise profits for the shareholders and owners, is considered hypocritical as it only seeks to benefit the company at the expense of the other stakeholders. The prevailing market situations presents it in a very different from the one which Marx new that capitalism and labour played a major role in objective setting. However, today businesses are expected to act in a social responsible way and therefore are forced to change on their behaviours. With this regard therefore, Grant (2003), acknowledge that management responsibility actually goes well beyond just pursuing profits. Being socially responsible and enacting policies that support the same actually depicts a company that is socially responsible. Pursuit of profit therefore require companies to act in such away they do not seem to be eager to profiteer quickly or act for self-interests and act in self-interest ways. However, if self interest is put at top of everything then the business is likely to suffer in the long-run after its activities and behaviours are brought into the open. In general therefore social performance should also be at top of company objectives as this will determine how the public perceives the business and the benefit attached to doing to business with (Wilcke 2004). Corporate social performance (CSP) can be defined in different ways. However, the common definition is that by Clarkson (1995), which is “doing that, that impact on the society.” Different analysis by (Maron 2006) and (Crisp 2008), show that there is clear consistence between CSP and owner value creation and maximisation. This actually looks promising to the business as it provides the platform for designing those objectives that ensure that there is equilibrium between CSP and shareholder wealth maximisation. Further, this is a brilliant idea that a business can make use of in setting out the objectives that can be used to solve some of the social problems while keeping optimal in the production and performance of the business. It is with this regard that many companies are becoming very strategic in investing in those projects that are worthwhile. In the strategic case, the investor only makes an investment in those projects that both the society and the business will benefit. For instance in the strategic investment the objective of the business in investing in society is to benefits from such aspects as good reputation, differentiation of product to earn premium and get high qualified staff. Social performance is therefore considered paramount in any company that seeks to maximise its profits and attain sustainable growth (Wilcke 2004). Conclusion The purpose of this analysis was to study the argument by Milton Friedman that the primary objective of the management in any organisation should be to maximise the shareholders and wealth. It is true that no single investor is willing to invest in a venture that will not add value to his money and therefore making profit maximisation the primary objective. However, after a critical evaluation of various literature and those areas that the company require profits such as growth and expansion and delver adequately on customer services and invest innovation, profit maximisation is not the only objective. This is because as businesses put in all the effort to grow, there are those factors that greatly affect on the performance and which include employees and community as covered under corporate social respective. With this in mind therefore, it has been found that planning to invest in society should also be considered among the key objectives as this will always affect the way the public perceives the business and its goodwill to impact on it positively. In general therefore, as much as profit maximisation is considered primary, growth is very important and this will always be associated with the kind of investment the business is making to the society. References Ahlstrom, D. (2010). ‘Innovation and Growth: How Business Contributes to Society’, Academy of Management, August, p. 11-24. Cosans, C. (2009). ‘Does Milton Friedman Support a Vigorous Business Ethics?’ Journal of Business Ethics, issue 87, p. 391-399. Maron, IY. (2006), ‘Toward a Unified Theory of the CSP–CFP Link’, Journal of Business Ethics 67(2), p.191–200. Craig, N. (2003). ‘Corporate Social Responsibility: Whether or How?’ California Management Review, vol. 45, no. 4, summer, p. 52-76. Crisp, R. (2008). Compassion and beyond. Ethic Theory and Moral Practice, 11, p. 233–246. Ferrell, O., and Ferrell, L. (2008). Business Ethics: Ethical Decision Making and Cases, 7th Edition (Houghton Mifflin, Boston) Husted, B., & de Jesus Salazar, J. (2006). ‘Taking Friedman Seriously: Maximising Profits and Social Performance’, Journal of Management Studies, 43:1, pp 76-91. Peinado-Vara, E. (2006). ‘Corporate Social Responsibility in Latin America’, The Journal of Corporate Citizenship, 21(1), p. 61–69. Shaw, W. (2009). ‘Marxism, Business Ethics, and Corporate Social Responsibility’, Journal of Business Ethics, 86, p. 565-576. Van Beurden, P., & Gossling, T. (2008). ‘The Worth of Values – A Literature Review on the Relation between Corporate Social and Financial Performance’, Journal of Business Ethics, 82, p. 407-424. Wilcke, R. (2004). ‘An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s Thesis’, The Independent Review, volume IX, no. 2, Fall, p. 187-209. Read More