Objectives
These results indicate a number of goals, important to the business, being simul-
taneously pursued. They also imply an increasing importance of four of them (sales
revenue growth being the exception) over time. It appears that, in 1980, shorter-term
objectives were more important to the respondents than were the longer-term ones.
However, by 1986, EPS (earnings per share) and growth in shareholders’ wealth had
become nearly as important as the shorter-term goals.
The Pike and Ooi results show some consistency with evidence from other surveys
conducted both in the UK and in the USA over recent years.
It should be noted that profit or earnings are properly defined as the net increase in
a business’s wealth as a result of its commercial activities. Thus goals that emphasise
profits or EPS are not necessarily in conflict with those that emphasise growth in
shareholders’ wealth. It is only where the longer-term benefit is being jeopardised in
favour of short-term profitability that there is conflict. Thus when Pike and Ooi’s
respondents identified short-term profitability as a goal they were probably not iden-
tifying it at the expense of longer-term goals. In fact the importance placed on EPS and
growth in shareholders’ wealth by the same respondents emphasises this point.
Evidence from annual reports
UK companies are legally required to report their accounting results and other infor-
mation about themselves in an annual report. Many businesses take the opportunity
to include information about themselves, including their business philosophy and an
outline of their objectives. Many businesses are fairly unequivocal that increasing, if
not maximising, shareholder wealth is their goal. The retailer Marks and Spencer plc
stated in its 2007 annual report that ‘The Group’s overriding corporate objective is to
maximise long-term shareholder value whilst exceeding the expectations of our cus-
tomers, employees and partners. In doing so, the directors recognise that creating
value is the reward for taking and accepting risk.’ In its 2007 annual report, British
Telecoms Group plc, the telecommunications business, said: ‘We are committed to
increasing shareholder value by transforming our customers’ experience through ser-
vice excellence.’ The travel business First Choice Holidays plcsaid in its 2006 annual
report: ‘We aim to deliver long-term sustainable shareholder value through continued
growth in profitability and we invest in current and newly acquired businesses to
achieve this.’ Reckitt Benckiser plc, the manufacturer of household products such as
Dettol, Harpic and Vanish, said: ‘Reckitt Benckiser’s vision is to deliver better con-
sumer solutions in household cleaning and health and personal care for the ultimate
purpose of creating shareholder value’ (annual report 2006).
Some businesses relate the benefits to shareholders in a way that seems to support
the point made on page 23 that maximisation of shareholder value is linked to satisfic-
ing. The water supplier and waste disposal business Severn Trent plcsaid in its 2007
annual report: ‘Our strategy takes into account the needs of many different stakeholders.
Our plans for higher standards will help us satisfy the expectations of all the different
groups. For example, greater operational efficiency will help us keep charges to cus-
tomers low, meet our regulators’ standards and targets, create a safe and motivating
environment for our employees, and produce good returns for shareholders.’
Probably a majority of businesses state their objective as being enhancement
of shareholder wealth with much the same clarity as Marks and Spencer, BT, First
Choice, Reckitt Benckiser and Severn Trent.
The pub operator JD Wetherspoon plcis an example of a business which said noth-
ing in its 2006 annual report about shareholder wealth being a key objective. However,