by Margaret Woods

　　01 Mar 2000

　　Few people would argue with the idea that commercial businesses aim to make profits， and that decisions in these businesses are focused around how best to achieve this objective. The desire to be profitable need not， however， be all embracing， and in practice it can be seen that companies are likely to pursue a wide range of objectives， which are both financial and non-financial in nature. This article seeks to explain how such diversity of objectives might arise， discuss examples of non-financial objectives， and consider the implications for company owners and society in general.

　　The first thing to note is that the suggestion that companies seek to make profits is a little imprecise. Does this mean that profit is sought at all costs， that maximum profit is the central aim， or that managers/owners are happy with a specific "satisfactory" level of profit? The exact answer will vary between businesses， as the priorities of owners and managers differ， but it is possible to establish some basic guidelines.

　　It is useful to remember that although a company is a separate entity in the legal sense， in reality it is made up of a collection of individuals and interest groups， all of whom have personal objectives to fulfil. Management will constantly be trying to balance the return to these groups e.g.， shareholders or employees， and discussion on corporate objectives really comes down to a compromise which takes account of what the different groups are seeking. Consequently some objectives may be financial in nature， such as a rise in earnings per share， whilst others will be non-financial e.g.， shorter working hours， or an increase in the level of waste recycling in a manufacturing process.

　　A useful starting point for analysing non-financial objectives， is to specify the variety of interest groups which may seek to influence company objectives， because they are affected by a company's operations. The list includes：

　　· Equity investors

　　In other words the owners of the business， who will be looking for a financial return on their investment.

　　· Creditors

　　This group will want to ensure that the business maintains the liquidity level required to repay its debts on time.

　　· Customers

　　Who will be concerned about product/service quality and price.

　　· Employees

　　Improved working hours and conditions of work will be important to this group， and so they may have a mix of financial and non-financial concerns.

　　· Managers

　　Whose personal objectives may to some extent conflict with those of the owners. For example， a manager may seek to increase staff levels， as a way of increasing his personal status， but this may be lead to reduced profits.

　　· The community at large

　　Communities are affected by company activities in a number of ways such as the use of land in a local area， the potential for pollution from effluents， commercial sponsorship of community projects and the impact of business activity on local transport systems.

　　Faced with such a broad range of interest groups， managers are likely to find that they cannot simultaneously maximise profits and the wealth of their shareholders whilst also keeping all the other parties happy. In this situation， the only practical approach is to try and work to satisfy the various objectives rather than maximise any individual one. Adopting such a strategy means， for example， that the company might earn a satisfactory return for its shareholders， whilst at the same time paying reasonable wages to satisfy employees， and avoiding polluting the environment， hence being a "good citizen." As a result， profit is no longer the sole corporate objective， and the pursuit of non-financial objectives has begun to be increasingly important， as part of a portfolio of corporate objectives which spread right out into the community of which they are a part.

　　Non-financial objectives

　　The range of possible non-financial objectives which might be pursued is broad， and the list below is not comprehensive， but may be viewed as indicative of the aims of a typical business at the start of the twenty first century.

　　Non-financial objectives might include：

　　· Growth of sales;

　　· Diversification;

　　· Survival;

　　· Contented workforce;

　　· Leaders in technology development;

　　· Product/service quality;

　　· Environmental protection.

　　Clearly some of the objectives listed are specific to the interests of one particular group of people， and the extent to which they are pursued is dependent upon the bargaining power of that group. For example， employees may want to reduce working hours or raise the hourly rate of pay， but if management do not face a problem in recruiting staff to work under existing contract terms， it may be very difficult to persuade management to pursue objectives which serve the interests of staff. In one sense， the "controlling influence" is always the equity investors. Pursuit of alternative goals，relating to employees， the environment or whatever， will incur costs and reduce profits. Equity investors will be conscious of this trade off， and if they think that they are losing too much as a consequence， investors will sell shares and the market value of the firm will fall. Managers need to remember that the interests of shareholders are paramount， but those interests will be tempered by the influences and objectives of other parties.

　　The recent furore over the Millennium Dome in London is evidence of this. A large proportion of the finance for the Dome came from commercial sponsorship， from companies such as Roche， Boots， BSkyB and Mars， and low attendance figures at the Dome have led these sponsors to threaten non-payment of their last tranche of funding， unless something is done to improve visitor numbers. The reason behind the commercial sponsorship is ultimately that it buys publicity for the companies concerned - it is a form of advertising. If the adverts do not draw in the customers， raising corporate profits， then the money has not been well spent. The mix of objectives for the sponsoring companies is quite subtle; on the one hand they like the public relations benefits that come from being associated with a large public project such as the dome， but at the same time they want a commercial return on their investment. In some texts， sponsorship of community projects in this way is termed "corporate social responsibility"， whereby the company recognises that its stakeholders extend well beyond the shareholders and out into the wider community. Regardless of the terminology，the fact is that companies now need to acknowledge some commitment to meeting the objectives of parties other than just the equity investors.　　In a large number of instances， the willingness of management to pursue wider objectives is a matter of goodwill on their part， combined with strong bargaining power on the part of the outside parties. In other cases， non- financial objectives are "forced" upon companies via legislation. For example， the furniture company Ikea is very environmentally conscious. This reflects Ikea's Scandinavian origins， but at the same time it also reflects the fact that EU legislation， and the Kyoto Protocol are forcing companies to become more environmentally conscious. For example， Ikea banned the use of HFCs and CFCs in its products some years ago. The ban might indicate a strong environmental conscience on the part of the company， or it may simply indicate an anticipation of legislation that would ban such products anyway. Nonetheless， regardless of the reason behind the ban， its very existence indicates that Ikea is typical of the many companies which pursue non-financial as well as financial objectives.

　　Shareholder impact of non-financial objectives

　　The impact of the pursuit of non-financial objectives upon shareholder wealth is not clear cut. There are many writers who would argue that companies which pursue a wide range of objectives find that they create for themselves a very positive public image， and this serves to increase shareholder wealth. Others would argue that community type projects simply add to costs and thus erode profit， thereby reducing shareholder wealth. In reality， the truth probably lies somewhere between these two extremes. Carefully selected projects， particularly those which are community related， may well serve as a form of indirect advertising， and raise the corporate profile and associated shareholder wealth. Other projects may simply represent a gesture of goodwill， on which no return is either sought or earned.

　　For example， suppose that a company decides to pursue an image of high product quality as a secondary objective. The aim is clearly non-financial in nature， but it will involve spending money on quality control and management projects which could add to costs and reduce profits. There is substantial research evidence from people like Juran， which suggests that "quality is free". In other words， the gains from higher sales levels and reduced costs of warranty claims exceed the costs of the investment in quality improvements. Where this is the case， then the shareholders actually gain from the fact that the company has chosen to pursue a non-financial objective.

　　In other cases， the shareholder impact will be much more difficult to identify. Some companies have a very good reputation in terms of the facilities which they provide for employees. Such provision clearly costs money， and absorbs funds which could be used elsewhere within a business， and so it might be easy to take the view that pursuit of the objective of employee welfare is detrimental to shareholders. In fact， it may work that such policies serve to reduce staff turnover rates and increase productivity. It is quite possible for the aggregate benefits from such a policy to exceed the costs， so that shareholders see profits rise over the longer term. As with many things， whether a strategy has a positive or negative effect depends upon the time frame within which it is being judged.