Should the primary objective of management be to increase the wealth of shareholders and owners

Should the primary objective of management be to increase the wealth of shareholders and owners Introduction Management has become a very important aspect that assists businesses in strategizing on growth and improving performance. Business oriented organizations are often made up of different groups of people who contribute to the general outcomes of the business. The entrepreneurs and shareholders are among the people who form the business organization. These two groups hold substantive amount of financial assets of the business. Are these the main shareholders of the organization? This is one of the main questions in the minds of managers. This issue complicates the exercise of management. However, management is a wide concept especially when applied to business firms.Advertising We will write a custom essay sample on Should the primary objective of management be to increase the wealth of shareholders and owners? specifically for you for only $16.05 $11/page Learn More There are different aspects of management that concentrate on various functions w ithin the firm. For instance, there is finance management that centers on finances of the organization. Shareholders and business owners often concentrate on this function (Geoffrey, 1994). Shareholders of the organization are often interested in the financial worth of a firm. This is because this is what assures them of getting tangible returns out of the investments they make in the firm (Beurden and Go ¨ssling, 2008). Therefore, the essence of management in the firm is not only to increase the wealth of shareholders and business owners. Management is a large function that concentrates on the wellbeing of the entire business. The stakeholders include: Shareholders, employees, the real business owners and the general corporate environment that benefit from the business outcomes. An ethical model of doing business is discussed in this paper. This helps in explaining the essence of sustainable business practices that form the core of management in a business firm. Management, as an organizational exercise, concentrates on the sustainability of the business. Therefore, the increase of the wealth of the shareholders is just one of the many factors of sustainability in the organization. Shareholders always remain interested in the general financial outcomes of the organization. This is because they gain significantly when the firm makes a lot of wealth (Geoffrey, 1994). However, there are many parameters to whether firms are accumulating more wealth or not. This leads to a different aspect of management in the organization. The accumulation of wealth is often an end product of the entire management exercise within the firm (Cosans, 2009).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Overview of the role of the business – wealth maximization and corporate social responsibility in management For a long time in history, it has been argued by experts and scholars of business management, that the main purpose of establishing business firms is making profits. This is a rational argument because no one can invest in a business venture without the motive of making money or wealth that comes in terms of profits. It is also assumed that when a business firm is making profits, the firm is most likely to benefit the society through increased employment. Nevertheless, it should be noted that business firms operate within the environment and should respect and contribute to the wellbeing of the environment (Chapman III and Whitmore, 1974). Business owners and other shareholders should not concentrate on the accumulation of wealth alone. They should also focus on the environment that helps the business in making the wealth. There are inconclusive debates regarding the extent to which management of firms has to embrace social responsibility. This is in respect to businesses that they manage. It is argued that social responsibility is critical to businesses because it paints a good picture of the business. In turn, this helps the firms to attract customers hence, fetching more profits (Hite and Vetsuypens, 1989). According to Chapman III and Whitmore (1974), there is a lot of interest in researching about the profit motives of businesses visvis the management through the aspect of embracing corporate social responsibility. It is evident that businesses are managed to maximize on profits. However, profits cannot be generated for a long time if all business practices are not structured in a way to cater for the needs of the environment in which they operate. Therefore, maximizing wealth for any business cannot be easily separated from the aspect of corporate social responsibility (Smith, 2003). However, it is argued that, due to the prevailing competition in the business environment, modern firms respond by concentrating on activities that directly increase the wealth of business. There is an inconclusive debate on whether this works well for the sustainability of profits in these organizations.Advertising We will write a custom essay sample on Should the primary objective of management be to increase the wealth of shareholders and owners? specifically for you for only $16.05 $11/page Learn More Firms that operate on a large-scale struggle to define ownership and control in the pursuit of organizational objectives. These objectives often center on the creation and sharing of the wealth of the organization. The shareholders and business owners are often characterized by a common aspect. In most cases, they are interested in making as much wealth as possible from the business. Unfortunately, this often puts them at loggerheads. This happens at times when they fail to concur on how to share the profits or business wealth. To make significant gains from business, the business owners will mostly pursue objectives that are considered to be inconsistent with the motives of the share holders. The shareholders’ main objective is geared towards maximization of wealth (Chapman III and Whitmore, 1974). Manager and shareholder conflicts have remained elusive. This has led to firms engaging in contracts and market control mechanisms that aim to reduce conflicts. This aims at reducing what is referred to as managerial opportunism, on the part of the business owners. Notably, wealth maximization remains to be a critical issue in the management of business firms. Shareholders always monitor the operational functions of the organization. Therefore, they can always be updated on the amount of wealth being accumulated by the business (Hadani, Goranova and Khan, 2011). This affects the direction of management within firms. The whole exercise of management is highly watered down due to loss of objectivity in management. Management should not be subjective, and needs to be objective in its operations. The management should concentrate on wholesome aspects that are likel y to make the internal and external environment of a firm favorable. Wealth maximization should be regarded as one of the strategic issues in the management exercise, as opposed to the main issue in the organization (Wilcke, 2004).Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More There are several theories that attempt to explain the essence and main purpose of business firms. Most of the theories focus on corporate governance, executive compensation policies and practices, and the social and economic performance of firms. One of these theories is the shareholder theory, which is derived from economics. This theory centers on the purpose of firms. Most firms aim at creating wealth for firm owners while ignoring the interaction of the firm with many other areas. The other areas include the role of the firm in enhancing societal development by engaging in societal roles (Ghoshal, 2005). There is also another stakeholder theory that pays attention to both the creation of wealth in firms and maximization on the role of the firm in discharging its roles within the society. This theory is an extension of the first theory because it considers the management of firms as an elaborate exercise that focuses on the entire business environment. Therefore, this is the mos t preferred theory in modern management because it considers other functions like corporate social responsibility. These other aspects are regarded to be equally important for the success of the organization. This theory contrasts with the argument presented by Friedman, which the major aim of creating firms is to make money and not enhancing the moral or social development of the society. Moral and social developments are activities that should be enhanced by the government and other not-for profit agencies (Husted and Salazar, 2006). Friedman argued that the engagement in moral and social issues by firms leads to the diversion of resources. In turn, this minimizes the wealth maximization motive of firms. However, businesses exist in the society, and it is obvious that the society has an impact on the performance of firms. The management of firms cannot be secluded from the society. This is because business firms exist and are supported by the same society where they exist. Therefo re, the management should consider the aspect of societal development as they strive to establish the right channels of maximizing wealth or profits (Pfarrer, 2010). Bejou (2010) has noted that the corporate social responsibility is important in improving the management practice in organizations. This is because it adds a human touch to the profit objectives of firms. Good management practices are not only evaluated basing on the wealth accumulated by the firm, but also on adherence to ethical standards, respecting the law and maintaining good corporate citizenship. However, the standardization of the corporate social activities for companies remains a problem. This is because the standards are not set based on empirical findings and explanations. Companies may act as if they actively engage in corporate social responsibility. On the contrary, there are some companies that attach very little value to these activities. Business challenges and the role of shareholders Enhanced corpora te accountability is advocated in the turbulent business environment characterized by major difficulties like financial crises. This undoubtedly calls for responsibility on all people who make up business organizations. Firm shareholders have acquired considerable say in business firms to help in enhancing accountability. This is achieved through enlisting and overseeing the corporate affairs of business firms. Management visions of firms are crafted to go beyond the aspirations of shareholders in business firms. In fact, the management exercises embrace inclusive and sustainable strategies by engaging shareholders and stakeholders in making and abiding by the sustainable decisions. Leading firms in private and public sectors within the United States and the United Kingdom are embracing this practice. Firms in the private and public sectors are enlightened on this shift within the management paradigm (Shaw, 2009). Shaw (2009) noted that stakeholders are not only increasingly recogni zed in terms of the financial goals of goals of organizations, but also as part of the corporate plan crafters and implementers for firms. Corporate governance rules and principles in organizations are considerate of the interests of shareholders and stakeholders. Wealth maximization does not remain a norm because it used to be in ancient organizations. It is included and considered when organizations are making management decisions. Major management decisions are reached where the interests of business owners and shareholders intersect with the agreed corporate social values of firms. Efforts to encourage sustainability no longer lie with few individuals in the organization. This has been spread to include organizational shareholders. While profit maximization remains important for organizations, shareholders are slowly being discouraged from inclining their minds towards wealth maximization. They are being encouraged to focus on corporate development of the organization as a means through which the wealth of firms is maximized. Shareholding in business firms remains to be one of the emergent orders of investment. As the shareholders are taught to participate in the corporate affairs of the business, the management exercise is improved and made holistic. Financial risks often eliminate related risks within a firm. Financial rewards are considered as the end products of the management practice for shareholders and investors. However, this is not regarded as the leading factor in management (Harper, 2010). When firms focus on maximizing the stocks of shareholders, the firm is focusing on the support of a positive internal environment. The individuals who are mostly featured in this instance are employees working in different sections of the organization. This includes the production, marketing, and administration sections of the organization (Baker and Powell, 2005). This aims at increasing the price of shares on the stock so that the firm can make considerable profits. The profits should be distributed to shareholders and the business owner. However, the profits are no longer shared amongst the shareholders and business owners in whole. Instead, some of the profits are also invested in the society in terms of promoting a supportive environment for business. Without a supportive environment, the stock price of the company cannot rise. In other words, the corporate social responsibility is becoming an important facet of business management as it helps in fetching opportunities to enhance profits for a business organization. Corporate environments are crafted as part of the long-term management objectives of organizations. The long-term earnings are based on how the management sets an environment that is receptive and supportive to the firm. Therefore, all aspects of management should be given priority. This includes human resource management, financial management, corporate governance, marketing management and public relations. Raising the shareholders wealth brings about the positive prospects of organizational growth. However, it is derived from collective, organizational management that focuses on facilitating the entire departments of a firm (Moyer, Mcguigan and Kretlow, 2009). Research has shown that those organizations that focus on maximizing the social welfare in the society where they exist are bound to make significant profits. These firms maximize on participation in corporate social responsibility. The shareholders are derived from the business environment that is cultivated by the management. Many organizational managers have realized the essence of enhancing social welfare as this boosts the number of people who will be interested to invest in the firm. In other words, the way firms manage their operations is a precursor to the attraction of investors or shareholders of the firm. The success of corporate firms cannot be directly attributed to the maximization of shareholder value in the firm. Nonetheles s, this can be attributed to the successful management of the firm. On the other hand, maximizing the wealth or value of shareholding in a firm is still relevant because a firm is likely to lose its capital if the shareholders withdraw (McSweeney, 2008). Nowadays, organizations focus on the stakeholders rather than narrowing down and focusing on the business owners and the direct shareholders. Stakeholders are affected too, and this affects the operations of a firm. They have direct and indirect contribution to the general performance outcomes of a firm. Organizations are highly influenced by the general stakeholders more than the shareholders. Stakeholders include direct and indirect customers. Other stakeholders are the organizational employees, suppliers and distributors of the firm and the local communities. There is also the media, competitors, business partners, financers, and the government. The government comes in as business regulators and policy makers. In fact, organizati ons are defined in terms of stakeholders. A firm is defined as a composition of stakeholders. Therefore, all interests of stakeholders have to be given preference by the management of the firm. Managers are required to run the activities of the firm to benefit the entire firm. The rights of participation in decision making, as well as interests of all stakeholders should be safeguarded by organizational managers. In most instances, the interests of the firm owners and the main shareholders are compromised by the management of firms. This is meant to accommodate the interests of other stakeholders of the organization. An example of such a decision is cutting the prices of products in favor of customers (Fontaine, Haarman and Schmid, 2006). The resolution of conflicts of interest in firms is resolved by the management team. Conflicts often arise in organizations regarding the finances of a firm. Shareholders of organizations consider themselves as the prominent parties of the firm. Ho wever, strategic and financial management functions point to the importance of both the shareholders and other stakeholders of an organization. Firms have to cater for the interest of stakeholders and shareholders. The degree of concentration on the interests of the two groups is what theories of strategic and financial management are yet to agree. However, there seems to be an agreement that stakeholders and shareholders are of high value to firms, and should be regarded as critical by the management (Beurden and Go ¨ssling, 2008). Therefore, each of these groups is given preference when addressing organizational matters that are directly related to each. Firms are administered in the interest of the entire environment, and this includes the owners, shareholders and stakeholders. Therefore, organizational structures are being crafted so as to be accommodative to the interests of the shareholders, stakeholders and business owners. The management structures are not just based on th e interests of organizational shareholders and stakeholders (Vilanova, 2007). The concept of maximizing the shareholder value in the organization has been given a lot of emphasis by modern organizations. However, this is being checked to ensure that it does not derail the entire management function in organizations (The Chartered Institute of Management, 2004). According to Ahlstrom (2010), the profit making motive matters a lot for firms and has to be encouraged. Firms cannot operate without thinking on how they will make significant profits rather or else they risk failing to meet the definition given to business firms. The way firms conduct their activities has led to enormous criticisms. This makes them appear as if they are only interested in maximizing profits for the firm owners and shareholders. Firms that embrace good management practices end up achieving economic and societal goals. Firms have to be innovative by focusing on the broader picture of the business. This helps them meet their financial goals, as well as the social goals. Social goals end up stimulating a good economic environment for a firm. Apart from attaining financial goals, corporate social responsibilities are considered as important components of management (Beurden and Go ¨ssling, 2008). Conclusion From the ancient times, the goals of establishing firms have been entirely revolving around the maximization of wealth or profits. This made organizations to be seen as tools of enhancing profit maximization. However, there is a realization that firms should consider the entire environment in which they exist. Therefore, organizational management has become elaborate and increasingly proactive so as to enhance economic and social outcomes of a business firm. Maximization of wealth for business owners and shareholders are only reflected in the economic outcomes of business management. Otherwise, businesses are managed to achieve financial and social outcomes. Therefore, management cann ot be geared towards the realization of financial or economic goals only. The social aspect is equally important. Reference List Ahlstrom, D 2010, ‘Innovation and Growth: How Business Contributes to Society’ Academy of Management Perspectives, vol. 24, no. 3, pp. 11-24. Baker, HK, and Powell, GN 2005, Understanding financial management: a practical guide, Blackwell, Malden, Mass. [u.a.]. Bejou, D 2011, ‘Compassion as the New Philosophy of Business,’ Journal of Relationship Marketing, vol. 10, pp.1–6. Beurden, P and Go ¨ssling, T 2008, ‘The Worth of Values – A Literature Review on the Relation Between Corporate Social and Financial Performance,’ Journal of Business Ethics, vol. 82, pp. 407–424. Chapman III, FM and Whitmore, GA 1974, ‘Beyond Shareholder Wealth Maximization: Introduction,’ Financial Management, vol. 3, no. 4, pp. 25-34. Cosans, C 2009, ‘Does Milton Friedman Support a Vigorous Business Ethi cs?’ Journal of Business Ethics, vol. 87, pp. 391–399. Fontaine, C, Haarman, A, and Schmid, S 2006, The Stakeholder Theory. Web. Geoffrey, P 1994, ‘Shareholder wealth maximization: business ethics and social,’ Journal of Business Ethics, vol. 13, no. 2, pp. 125-134. Ghoshal, S 2005, ‘Bad management theories are destroying good management practices,’ Academy of Learning Education, vol. 4, pp. 75-91. Hadani, M, Goranova, M, and Khan, R 2011, ‘Institutional investors, shareholder activism, and earnings management,’ Journal of Business Research, vol. 64, pp. 1352–1360. Harper, HV 2010, Enlightened Shareholder Value: Corporate Governance Beyond the Shareholder-Stakeholder Divide,’ Journal of Corporation Law, vol. 36, no. 1, pp. 59-112. Hite, GL and Vetsuypens, MR 1989, ‘Management Buyouts of Divisions and Shareholder Wealth,’ The Journal of Finance, vol. 44, no. 4, pp. 953-970. Husted, BW and Salazar, J 2006 , ‘Taking Friedman Seriously: Maximizing Profits and Social Performance,’ Journal of Management Studies, vol. 43, no. 1, pp. 75-91 McSweeney, B 2008, ‘Maximizing shareholder-value: A panacea for economic growth or a recipe for economic and social disintegration?’ Critical Perspectives on International Business, vol. 4, no. 1, pp. 55 – 74. Moyer, RC, Mcguigan, JR and Kretlow, WJ 2009, Contemporary financial management. South-Western/Cengage Learning, Mason, OH. Pfarrer, MD 2010, What is the Purpose of the Firm?: Shareholder and Stakeholder Theories. Web. Shaw, W 2009, ‘Marxism, Business Ethics, and Corporate Social Responsibility,’ Journal of Business Ethics, vol. 84, pp. 565–576. Smith, NC 2003, ‘Corporate Social Responsibility: Whether or how?’ California Management Review, vol. 45, no. 4, pp. 52-76. The Chartered Institute of Management Accountants 2004, Maximising shareholder Value Achieving clarity in decision-mak ing: Technical Report. CIMA, Great Britain. Vilanova, L 2007, ‘Neither Shareholder nor Stakeholder Management: What Happens When Firms are Run for their Short-term Salient Stakeholder?’ European Management Journal, vol. 25, no. 2, pp. 146–162. Wilcke, RW 2004, ‘An Appropriate Ethical Model for Business and a Critique of Milton Friedmans Thesis,’ The Independent Review, vol. 9, no. 2, pp. 187-209. Should the primary objective of management be to increase the wealth of shareholders and owners Introduction Business administrators and scholars often debate about the goals that managers have to achieve. It is often believed that these professionals should be mostly concerned with the wealth of owners and shareholders.Advertising We will write a custom essay sample on Should the primary objective of management be to increase the wealth of shareholders and owners? specifically for you for only $16.05 $11/page Learn More Such an assumption can seem quite plausible, because every company will cease to exist provided that it does not bring revenues to its investors. However, it also has to create the value for customers, community and employees. Without it, the very sustainability of this organization can be put under threat. Moreover, a manager who thinks only about financial benefits, can compromise his/her ethical principles. This paper is aimed at showing that maximization of profits can be possible only if the management of a company strives to foll ow both ethical and legal rules. Their main goal is to create value for customers, employees, and the society in general. They should not focus only on the needs of owners or stockholders. This is the main thesis that should be discussed. The first section of this paper will analyze theoretical origins of the belief that the primary objective of management is to maximize the wealth of owners. In particular, it is necessary to focus on the works of Milton Friedman and the way in which his ideas could be misinterpreted. Moreover, this section will show that long-term profitability of businesses is impossible without ethics and social responsibility. The second section will identify the benefits of creating value for various stakeholders. Finally, the third section will examine the dangers of thinking only about financial performance and profitability.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Le arn More Profits as a core objective of management The idea that wealth maximization should be the top priority for managers has been discussed in the works of many economists. One of them was Milton Friedman who argued that businesses had to concentrate on their profitability (Friedman as cited in Cosans 2009, p. 391). This argument could be very appealing to many corporate executives because by adopting this approach they could resolve or even dismiss many ethical dilemmas and problems. Moreover, many business administrators assumed that a company could do whatever it deemed necessary provided that these actions did not contradict the law (Cosans 2009, p. 392). Therefore, this business philosophy frees an organization and its managers from many restrictions and obligations that can be related to the rules of ethics. This is why it enjoyed popularity for a long time. Even now many business administrators apply this principle, even though they can speak about corporate socia l responsibility of their companies. Unfortunately, many business administrators and even scholars simplify the ideas of Milton Friedman. In fact, he did not exclude ethics from the functioning of companies. He said that the activities of a profit organization â€Å"should be conforming to the basic rules of society† (Friedman as cited Cosans 2009, p. 393). Overall, he placed emphasis on such issues as compliance with the law, unacceptability of deception, and openness of the company (Friedman as cited Cosans 2009, p. 396). This entity was not allowed to disregard the needs of other stakeholders such as customers or workers. This is why ethics and profit seeking should not be separated from another. Thus, even if managers believe that their main task is to increase the wealth of owners and stockholders, they should not try to achieve this objective at any cost. Business administrators or corporate executives have to reconcile the needs of an organization with legal and ethica l standards; otherwise their work can hardly be viewed as successful.Advertising We will write a custom essay sample on Should the primary objective of management be to increase the wealth of shareholders and owners? specifically for you for only $16.05 $11/page Learn More Thus, those managers pursuing profits at any cost should not suppose that many scholars support this approach. There is no way in which one can reject the restrictions of business ethics. Ethical aspects of businesses continue to attract the attention of many scholars and many of them believe that ethics and responsibility are necessary for successful functioning of markets or even entire economies. For instance, William Shaw (2009) admits that businesses are driven by self-interest, yet, he also points out that by following only economic players can achieve long-term benefits only if they follow a certain set of rules (p. 568). To a great extent, the situation reminds the so-called priso ner’s dilemma in which a player has to sacrifice some of his/her interests in order to succeed (Shaw 2009, p. 567). For instance, car manufacturers have to place much emphasis on the safety of their customers, even though they have to incur extra expenses and even recall many cars. Provided that they choose to neglect this issue, they can simply lose the trust of their clients. In this regard, one can mention the notorious case of Ford Pinto. The management of Ford Corporation chose not to recall the car that had a poorly designed gas tank (Danley 2005, p. 234). When this information was revealed, the reputation of Ford Corporation suffered a severe blow. More importantly, their revenues began to decline. This case illustrates that ethics has to be an inherent part of businesses activities, because without them, no form of cooperation will be possible.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The thing is that business activities are premised on long-term cooperation and the formation or partnerships or alliances (Solomon 1999, p. 18). They can hardly exist provided that partners think only about their self-interests. Apart from that, this example shows that companies are dependent on many stakeholders, for instance, customers. Although, they do not own stocks of a company, they can strongly influence this organization. In this context, the term stakeholder can be defined as every person or organization that can affect a company is affected by it (Fassin 2012, p. 85). This is another reason why profit maximization cannot the sole objective of managers. On the whole, managers should not assume that ethical decisions always run against the self-interest of a company or individual. This is the assumption that only harms many businesses. Profitability and responsibility toward various stakeholders are quite consistent with one another. This is the main issue that business ad ministrators should consider. Such scholars as Bryan Husted and Jose Salazar (2006) argue that modern firms should not be forced to behave in a socially responsible way (p. 75). Under such circumstances, they will act as â€Å"coerced egoists† (Husted Salazar 2006, p. 76). Most likely, the managers of these organizations will only speak about social responsibility without actually practicing it. The main argument of these authors is that the ethical principles should be imbedded into the strategies of an organization. In their belief, the goals of stakeholders and stockholders do not oppose one another. In fact, one should draw a line between them. Managers should remember that it is possible to increase the wealth of stockholders without compromising ethical and legal norms. The following two sections will discuss various rationales for behaving in a socially responsible way. Creation of benefits for stakeholders At this point, it is necessary to demonstrate why managers sh ould pay attention to the needs of various stakeholders. First, even if a person assumes that the task of a business is the maximization of profits, there is still no clear-cut strategy for attaining this goal (Shaw 2009, p. 573). The need to increase revenues does not actually show the path that managers should take. Thus, one still has to evaluate alternative strategies that are available to the company. Some of them can correspond to the standards of corporate social responsibility while other cannot. In his article, David Ahlstrom (2012) points out that the most successful companies have some features in common; in particular, they are willing to create innovative goods or services that benefit customers and society (p. 12). These organizations create employment opportunities in the community and make the lives of people more comfortable. In other words, these companies strive to create value for various stakeholders. They have some of the following characteristics: 1) the empow erment of employees; 2) customer orientation; 3) the adoption of eco-friendly technologies; 4) accountability of corporate executives (Bejou 2011, p. 3). These are the most distinctive traits of these organizations. Among them one can distinguishing such corporations as Apple Inc, Google, ATT and many others. They occupy leading position in their markers. These examples are important because they show that a responsible behavior of a company does not necessarily harm its financial performance. Furthermore, one should take into account that people’s attitude toward businesses have evolved within the last fifty years. According to David Ahlstrom (2012), contemporary societies expect companies to bring benefits to the community (p. 22). These organizations should be accountable to both governmental organizations and community in general (Smith 2003, p. 63). Thus, a company that is driven only by self-interest will find it difficult to achieve success. The idea that revenues are the only goal of a business, could be acceptable thirty or forty years ago. However, it cannot be easily tolerated by people who live at the beginning of the twenty-first century. In the modern world, corporate social responsibility is a norm that an organization should adhere to. This is one of the issues that corporate executives should not overlook if they want to be successful in the workplace. It is hardly permissible to assume that advanced societies will tolerate pure pursuit of profits at the expense of the entire community. Furthermore, it is necessary to point out that for-profit organizations influence and can be influenced by a variety of people or organizations. Among them, one can single out stockholders, customers, governmental organizations, employees, trade unions, environmental organizations and so forth. Admittedly, stockholders occupy the most important place, because they invest capital in a company. Any company will simply go bankrupt provided that their needs are not fully met. Their prosperity should be the main priority for management. However, one should not disregard other stakeholders, such as customers or workers. They can affect the public image of an organization, its revenues, and internal performance. Without their commitment the very sustainability of a company can be jeopardized. Those business administrators, who focus only on the wealth of stockholders, can forget that their companies depend on other people, for instance, customers whose attitudes can profoundly impact the sales rates every company. Such corporate executives can actually lead the companies to stagnation. Therefore, managers should determine the way in which certain stakeholders can affect a company. In this way, they can better develop long-term strategies of this business. The main point is that businesses and stakeholders are interdependent entities and they have to find solutions that benefit each side. Additionally, one should note the majority of succe ssful companies are those ones which were able to win the trust of loyalty of the employees who are very influential stakeholders. If these people feel that they are valued by the organization, they will be more likely to be committed to the goals that the management sets (Bejou 2011, p. 4). They will be willing to defend the reputation of a business. More importantly, these people can hardly accept an idea that they are treated only as means for increasing the wealth of shareholders. If they realize that the management does not attach much importance to their needs, they will fewer incentives to work harder. The management will be able to motivate them only with the help of financial rewards or punishments. Moreover, one can even expect them to violate the rules that the management sets. Employees can also be considered as stakeholders and they can shape financial and organizational performance of every company. For instance, they can affect the company’s relations with its clients. Therefore, a good manager will try to find a compromise between the needs of these people and the interests of stockholders. This is one of the main tasks that corporate executives should try to cope with when they will develop long-term strategies of companies. When discussing the need for corporate social responsibility, one should not focus only on ethical considerations. It is also possible to mention economic rationale for adopting this strategy. The study carried out by Pieter van Beurden and Tobias Gà ¶ssling (2009) shows that companies, which adhere to the principles of CSR, usually yield better results (p. 409). These authors identify various forms of corporate social responsibility, namely, philanthropy, accountability to the public, environment protection, and promotion of diversity in the workplace (Beurden Gà ¶ssling 2009, p. 409). These scholars found a positive relationship between the ethical behavior of an organization and its financial performance. Soci ally responsible business activities can positively affect market return, share price appreciation, and stock performance (Beurden Gà ¶ssling 2009, p. 411). Surely, in each case, the degree of positive influence varies, but there is a marked correlation between business ethics and improved performance. Moreover, the researchers single out other benefits of corporate social responsibility (CSR). For instance, Jacqueline Cramer and Fred Bergmans (2003) identify the following advantages that CSR can bring: 1) a good reputation that is earned through ethical business practices; 2) improved energy efficiency that can be achieved through the use of alternative energy technologies; 3) greater commitment of workers; and 4) the trust of customers (p. 50). Some of these benefits can be measured quantitatively, in particular, economic efficiency, in turn, some of the advantages are intangible. Yet, in each case, CSR can give a company competitive advantage over its rivals. Yet, this goal can be attained only if managers strive to reconcile the needs of different stakeholders who do not necessarily have to be owners or shareholders. A good company should be able to identify the ways in which it can influence others; they also have to think about the possible impacts of stakeholders on their performance. This knowledge will help this organization acquire and retain leading positions in the market. The following section will focus on the risks that managers take when they focus only profitability. The drawbacks of disregarding corporate social responsibility Some corporate executives may be reluctant to follow the principles of CSR because possible advantages do not always yield numerical measurement. This is why one should mention that increased emphasis on the revenues can actually harm a company in the long-term. The thing is that such an organization can become unwilling to adopt new business models or technologies. In many cases, corporate executives pay attention on ly to the short-term profitability of their businesses and overlook the needs and values of other stakeholders. Secondly, they can overlook the risks that are associated with the pursuit of profits. Such corporate leaders can overlook the dangers to which their companies can be exposed to (Christopoulos, Mylonakis, Diktapanidis 2011, p. 11). They often forget that in most cases such a strategy only harms a business. For example, one can mention such a company as Lehman Brothers. This management of this corporation was primarily concerned with the increase of short-term profitability (Christopoulos, Mylonakis, Diktapanidis 2011, p. 11). Very little attention was paid to the obligations that Lehman had toward investors and their interests. Yet, they did not to assess the threats to which they were exposed. As a result of this policy, many employees and investors lost their money. One can even argue that the recent financial crisis can largely be explained by unscrupulous policies of many businesses and unwillingness to think about long-term growth of businesses. Thus, managers should remember about the dangers of looking only at financial performance, and disregarding the social performance of a company. As it has been said before, profitability of a company and ethical behavior are usually inseparable from one another. It should be noted that the majority of modern companies are not monopolies. Only such organizations can dictate their terms to the customers and sometimes even to the entire community. Nevertheless, the number of such monopolies was reduced to a minimum. As a rule, contemporary businesses have to face severe competition. They have to differentiate themselves among others only by creating a distinct value for the customers. Provided that this goal is not achieved, a company will become stagnant or simply lose its positions in the market. Those companies that are driven by the pursuit of profits often fail to identify the needs and values of cus tomers. Therefore, it will be difficult for this organization to differentiate its products from those ones manufactured by its competitors. In the future, the revenues of this company may decline. Thus, mere pursuit of revenues can actually be self-defeating because it does not allow a company to create innovative products. Thus, managers should take this possibility into account and minimize such risks. Furthermore, one should not forget that businesses can be affected by governmental organizations. For instance, there are environmental agencies, departments of labor, internal revenue services, trade commissions, and so forth. They are able to impose fines on the company or develop regulations that can restrict the activities of many businesses. These institutions have the capacity to coerce every company. Besides, those businesses that disregard the rules of ethics often have to face many lawsuits. Sometimes, the costs of these lawsuits can be devastating for an organization. Thu s, there is a distinct and economic need to think about the needs of the community, customers, or employees. Loss aversion may not be the most ethical reason for behaving in a socially responsible way, but even in this way one can see that an unethical business is more likely to fail. Managers, who are concerned only with revenues, run the risks of violating the law and losing money. So, one can argue that there are legal reasons for thinking about corporate social responsibility. Conclusion This discussion indicates that profitability of an organization should not be separated from ethical considerations because without them businesses will not be able to achieve sustainable growth. Secondly, even if managers assume that their task is to increase the revenues of owners or stockholders, they should not forget that this goal can be achieved only if they meet the needs of various stakeholders, namely employees, customers, governmental organizations, and the community in general. They are capable of boosting the financial performance of a company, but they also can ruin it. The most rational strategy for a business is to accept the idea that self-interest should be restricted by ethical constraints, especially the necessity to promote the wellbeing of a community. Overall, special attention should be paid to customers, workers, and governmental organizations since they are the most influential stakeholders. The managers have to find a way in which the financial goals of a business can be made consistent with the principles of corporate social responsibility. References Ahlstrom, D 2010, Innovation and Growth: How Business Contributes to Society, Academy Of Management Perspectives, vol. 24 no. 3, pp. 11-24. Bejou, D 2011, Compassion as the New Philosophy of Business, Journal Of Relationship Marketing, vol. 10 no. 1, pp. 1-6 Beurden, P, Gà ¶ssling, T 2008, The Worth of Values – A Literature Review on the Relation Between Corporate Social and Financial Perf ormance, Journal Of Business Ethics, vol. 82 no. 2, pp. 407-424. Christopoulos, A, Mylonakis, J, Diktapanidis, P 2011, Could Lehman Brothers Collapse Be Anticipated? An Examination Using CAMELS Rating System, International Business Research, vol. 4 no. 2, pp. 11-19. Cosans, C 2009, Does Milton Friedman Support a Vigorous Business Ethics?, Journal Of Business Ethics, vol. 87 no. 3, pp. 391-399. Cramer, J Bergmans, F 2003, Learning about Corporate Social Responsibility: The Dutch Experience, IOS Press, New York. Danley, J 2005, Polishing up the Pinto: Legal liability, moral blame, and risk, Business Ethics Quarterly, vol. 15 no. 2, pp. 205-236. Fassin, Y 2012, Stakeholder Management, Reciprocity and Stakeholder Responsibility, Journal Of Business Ethics, vol. 109 no. 1, pp. 83-96. Husted, B, De Jesus Salazar, J 2006, Taking Friedman Seriously: Maximizing Profits and Social Performance, Journal Of Management Studies, vol. 43 no. 1, pp. 75-91. Shaw, W 2009, Marxism, Business Ethics, and Corporate Social Responsibility, Journal Of Business Ethics, vol. 84 no. 4, pp. 565-576. Smith, C 2003, ‘Corporate Social Responsibility: Whether or How?’, California Management Review, vol. 45 no. 4, pp. 52-76. Solomon, R 1999, Game Theory as a Model for business and business ethics, Business Ethics Quarterly, vol. 9 no. 1, pp. 11-29.