Revisiting the Ultimate Goal of Firms

It is clear that from the arguments of Coarse (1937) and Williamson (1964), that a firm’s decisions and actions are majorly influenced by the intentions to maximise profits. The most straightforward way of earning profits is by increasing sales. Therefore, Orlitzky and Benjamin (2001, p. 371) stated that firm managers could want to maximise their short-run sales so that they can gain a larger market share and maximise their long-term returns. If this is the case, then it means that sales increment is the ultimate objective of a firm and not profit maximisation as sated by the proponents of the theory of the firm. Managers would then not be maximising sales because of the benefits that are associated with more business revenue, but the maximisation of the sales will be the goal. In cases where managers in a firm are only interested in sales growth then it is likely that such actions are pursued because of the advantages derived from the increase in sales such as prestige, power, and salary increment. In reference to the framework established by Williamson (1964), then the maximisation of the firm’s sales is not the ultimate objective rather the goal is to gain more influence, salary, and benefits. Increased salary and benefits imply increased employee welfare. A company that can maximise its incomes and revenue in a market theoretically helps to ensure the maximisation of social wealth, which in turn will certainly touch on the facets that are part of the company. The only way a company can maximise social wealth is by engaging in corporate social responsibility. Therefore, this study works on the assumption that the ultimate goal of companies is to maximise profits and use these profits to improve various aspects of business and society. Hence, profit maximisation is not the ultimate goal, rather improving the business and society is the ultimate goal of any business, which can be realised by profit maximisation, and increment of sales.

Different authors have also found links between the profits realised by a firm and corporate social responsibility. For example, Simpson et al. (2002) linked CSR to an enhancement in the economic value of a company, Moore (2001) correlated CSR to the decrease of organisational risks, Backhaus et al. (2002) found a correlation between employee retention and CSR, and lastly, Luo et al. (2006) correlated CSR to the company’s market value via client fulfilment. From the studies listed, a common trend that was prevalent was that profit maximisation affects a company’s ability to engage in corporate social responsibility, while at the same time, CSR influences certain factors such as corporate reputation and employee retention among other facets that can either enhance or derail a business’s ability to maximise their profits in a perfect market.

Corporate reputation

Becchetti and Ciciretti (2009, p. 1290) argued that society draws a firm’s reputation from the available information about that particular firm. The information majorly originates from the firm itself, or other monitoring and regulatory bodies such as mass media. Identifies that apart from the quality of goods and services being produced by a company, other facets that can also influence a corporation’s reputation include the ethical guidelines of a firm and the recruitment patterns. In reference to the recruitment patterns of a company, Cornelius, Wallace, and Tassabehji (2007) detailed that the inclusion of workers from various social backgrounds is key. In other words, one way of drawing a positive reputation is by being inclusive when recruiting new workers. For example, Accenture PLC gained global recognition from Forbes magazine, among other accolades for hiring employees from different backgrounds in 2018, especially those that had a disadvantaged position in the society (Doerr, 2018). The ripple effects of this recognition helped the company to acquire more shareholders, improved the company’s market value, and attracted more clients, which eventually lead to an increased number of sales and profit maximisation.

André (2013) argued that a good reputation could lead to subsequent financial success, like in the case of Accenture PLC. The financial success can be due to various reasons such as differentiating the company from its competitors, raising the confidence of the buyer and encouraging potential shareholders to invest in the company. Bhattacharya and Sen (2004, p. 17) also added that the reputation of a company in regards to its inclusivity policies affects the purchase intentions of clients and their overall satisfaction through their past expectations. For example, a company that employs single parents, war veterans, and people with disabilities among other underprivileged people in the society is likely to appeal to consumers of the same class, and those who support such initiatives, thereby increasing their overall sales. Generally, the satisfaction of clients majorly relies on the overall evaluation of experience felt by the client when purchasing and after purchasing a certain product or service. In the overall evaluation, a comparison between services or products made by other companies are initiated and the outcomes derived after consuming the good or service. The past standard of experience and the confirmation of the same is likely to determine satisfaction. When the outcome turns out to be as expected, the customers turn out to be satisfied, especially when the service is offered by someone whom the consumer can relate to.

CSR also influences client satisfaction and their intentions to purchase through the reputation of the corporate. The actions of a firm have the potential of attracting various agents, who not only work as economic agents, but also as members of a community (Beltratti 2005). In the corporate world, people cannot only be viewed as customer, rather they are also agents who take part in various shareholder groups concurrently, which makes their approval with product and facilities more expected when supplied by a company that is perceived to be socially responsible, as compared to when supplied by a firm that is perceived to be irresponsible.

Besides, inclusivity is a way to improve a firm’s reputation and the perceptions of stakeholders. An appropriate CSR report establishes an encouraging framework for consumer evaluation and their subsequent attitude towards a company. Keim (1978) discusses the role that inclusivity can play in constructing the image of the company because it led clients to have a sense of identification with a company, rendering them more likely to embrace what the company offers. Besides, people usually identify more with firms that perceive their identity as distinctive and one way of being distinct is through the recruitment patterns. Sánchez & Sotorrío (2007) revealed that in some instances a company’s reputation could enhance the perception of a product under some circumstances. The integration between businesses, industry, and the cause they support are respected as much. In cases where consumers perceive that the effort of companies is socially responsible, they are likely to attach some value to the product. Moreover, clients are likely to praise firms that are proactively advocating for social issues as compared to that do not have a clear stand on certain issues.

Key and Popkin (1998) contended that the knowledge of clients in a firm is likely to affect the satisfaction that they derive from a product. The same study also revealed that clients have an in-depth understanding of companies that work towards improving social injustices. Besides, a consumer’s knowledge about a company’s CSR is a fundamental requirement for positive consumer reaction to the products and services that are being offered by a company. A study by Nijhof, Fisscher, and Looise (2002) revealed that clients are the main stakeholders in a group because they are sensitive to the social initiatives that can organisation partakes. More enquiries in the field of profit maximisation and business engagement in the society point towards a positive correlation between the company’s social involvement and a customer’s reaction to the products they produce. A study by Bhattacharya et al., 2004 revealed that USA citizens were 84% likely to consume products or services produced by companies linked with a social cause if the quality and price were the same as other brands. It implies that customers tend to incline to brands that have an active role in society in one role or the other — the most reputable the firm, the better the reaction to a product or service.

Apart from increased sales from consumers, Williamson (1964) added that shareholders tend to admire companies that have a character such as trustworthiness and reliability. These ideals can only be fostered if through social initiatives. Firms that have an opportunist, unethical and unreliable are less reputable.

Conclusion

In conclusion, a company’s reputation reflects its likely behaviour with respect to the relationship it has with its customers and shareholders. Studies have revealed that stakeholders are likely to support companies which they perceive to have a common value like theirs, and the firms that they can rationally expect to behave reliably with integrity. In contrast, company decisions that are perceived to be opportunistic lack integrity or are unreliability derail the reputation of a firm.

In contrast to the tenets of Williamson (1964), national law and policy do not offer viable frameworks that can regulate the performance of companies, especially in the current market where competition is high, and every firm aims at achieving efficacy. Therefore, to maximise a company’s profit, managers should therefore use more strategies to assure shareholder objectives, guarantee the sustainability of corporations. Secondly, organisational sustainability is fundamental for company management, looking at it from various points of view. Any profit maximisation strategy that does is not political, social, environmental, and economically sustainable is bound to failure, even in a perfect market. Firms that are likely to be affected by the lack of a clear profit maximisation strategy are those that developed a short-term vision (Wymer and Rundle-Thiele 2017, p. 27). From various studies, it was also clear that firms that took part in the process of assets bubble are the same ones that were dented by crisis of not having a social friendly/supportive profit maximisation strategy (Christensen, Peirce, Hartman, Hoffman, and Carrier 2007, p. 361). It implies that firms that have least social initiatives were less profitable. Lastly in a globalised market, an economic crisis in one region is felt by other companies in distant areas, which is an indicator that the global market is interconnected and that is why a crisis in one region affects the whole market. The same can be said about a company’s reputation, a reputation that compromised in one side region spreads across the globe. For example, when Nike was accused overworking and underpaying its employees in Asia, the news quickly spread and within a month after these allegations, Nike’s share value had dropped both in the London stock exchange and in Wall Street, which later negatively affected the annual revenue realised by the company.

Several arguments have supported the claim that responsible firms tend to realise more profits than those that are not, however, it is not yet clear as to what happens when business carry out their business properly yet still lose out in the market. Therefore, there is a need for further investigations and the establishment of a scientific model that can explain such occurrences. Besides, the government and the related authorities ought to help companies in ensuring that consumers are aware of the limits of a business towards their social welfare, environment, and what entails sustainability from an economic aspect. Even so, sometimes corporate social responsibility could be perceived as just a management tool, and strategy to enhance the image of a firm; such thoughts are likely to lead to failure or mislead the corporation in terms of misunderstanding the outcomes of such strategies when it comes to profit maximisation.

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