Example of Company Objectives

Divide from the problem of which goal a company ought to pursue are the questions of which goals companies claim to pursue and which goals they actually pursue. several objectives are quoted by large companies and sometimes are included in their annual accounts.

Examples are:

1) to produce an adequate return for shareholders;

2) to grow and survive autonomously;

3) to improve productivity;

4) to give the highest quality service to customers;

5) to maintain a contented workforce;

6) to be technical leaders in their field;

7) to be market leaders;

8) to acknowledge their social responsibilities.

Example of Company Objectives

A few of these stated objectives are probably a form of public relations exercise. Anyhow it is possible to classify most of them into four categories which are related to profitability

(a) Pure profitability goals example adequate return for shareholders.

(b) Surrogate goals of profitability example improving productivity, happy workforce.

(c) Constraints on profitability example acknowledging social responsibilities and no pollution etc.

(d) Dysfunctional goals.

The last categories are goals which must not be followed because they do not create benefit in the long run. Instances here include the pursuit of market leadership at any cost even profitability. This may occur because management assumes that high sales equal high profits which isn't necessarily so. In practice the goals which a company in fact pursues are affected to a large extent by the management. As a last resort the directors may perhaps always be removed by the shareholders or the shareholders could vote for a take-over bid but in large companies individual shareholders lack voting power and information. These companies can thus be dominated by the management.

There are two altitude of argument here. Firstly if the management do effort to maximise profits then they are in a much more powerful position to decide how the profits are carved up than are the shareholders.

Secondly the management may in reality be seeking prestige goals rather than profit maximisation:

Such goals might comprise growth for its own sake, including empire building or maximising turnover for its own sake or becoming leaders in the technical field for no reason other than general prestige.

Such goals are typically dysfunctional.

The supremacy of management depends on individual shareholders having no real voting power and in this respect institutions have usually preferred to sell their shares rather than interfere with the management of companies. There is several evidence though that they are now taking a more active role in major company decisions.

From the entire that has been said above it appears that each company should have its own unique decision model. For instance it is possible to construct models where the objective is to maximise profit subject to first fulfilling the target levels of other goals. But it isn't possible to develop the general theory of financial management very far without making an initial simplifying assumption about objectives. The purpose of maximising the wealth of equity shareholders seems the least objectionable.