1. Profit maximization – This is a traditional and a cardinal objective of a business. This is so for the following reasons:
• To earn acceptable returns to its owners. (i.e. Must not be less than bank rates + inflation +risk)
• So as to survive (through plough backs)
• To meet its day to day obligations.
2. To maximize the net worth i.e. the difference between total assets and total liabilities. This is important because:
• It influences company’s share prices.
• It facilitates growth (plough backs).
• It boosts the company’s credit rating.
• This is what owners claim from the company.
3. To maximize welfare of employees – Happy employees will contribute to the profitability.
This includes:
• Reasonable salaries
• Transport facilities
• Medical facilities for the employee and his family
• Recreation facilities (sporting facilities).
4. Interests of customers – the company has to provide quality goods at fair prices and have honest dealings with customers.
5. Welfare of the society – the company has to maintain sound industrial relations with the society:
• Avoid pollution
• Contribution to social causes e.g. Harambee contributions, building clinics etc.
6. Fair dealing with suppliers. A company must:
• Meet its obligations on time
• Avoid dishonor of obligations.
7. Duty to the government: A company should:
• Pay taxes promptly
• Go by government plans
• Operate within legal framework
Firms face difficulties in achieving shareholders wealth maximization:
Two difficulties complicate the achievement of the goal of shareholder wealth maximization in modern corporations. These are caused by the agency relationships in a firm and the requirements of corporate social responsibility
