Page 43 - PRAGMATIC STRATEGY

4 Possible Objectives

4-1 Economics and efficiency

4-1-1 Profit Maximisation. The traditional aim of the capitalist form
is to maximise profits. In a modern society there are legal, ethical
and practical constraints to the uncontrolled drive for profits. There
is a contradiction between short term profits and long term
development. How can management know when the maximum profit level has
bean reached?

Firms use proxies for maximisation such as return on investment or
return on shareholders' assets which have the added advantage of
measuring the effectiveness of management and their use of limited
scarce resources.

For the shareholder, the aim is for a growing dividend combined with an
increasing value in the share price related to the perceived risk
implicit in the investment.

US/UK academic evidence suggests that in practise the Chief Executive
and his group aim at a level of profits/dividends/share price and risk
to "satisfy" the investor using the proxies discussed above.

4-1-2 Growth. Another proxy for maximisation is growth as an objective
(in terms of sales, profit, assets and the like) compared with previous
results, or as a ratio of other facts (profits as a percentage of
assets) or with similar figures for firms in the same industry.

4-2 Personal Objectives

4-2-1 Family Firms.