Corporate objectivesa pattern that seems likely to be persistent. The Department for Business Enterprise
and Regulatory Reform (2007) shows the number of new business start-ups during
2006 to have been 182,200, but during the same year there were 143,100 failures. These
failures were almost certainly not all 2006 start-ups, but the information in Figure 16.1
suggests that many of them would have started either during 2006 or fairly shortly
before that year. This relationship between the number of start-ups and the number of
failures has persisted since the mid 1990s.
It seems that failure is very much the normal, though far from inevitable, fate of a
new business. Not all new businesses are small, but it is very likely that most of them
will be.
Storey (1994) cites evidence that seems to show consistently that size is a big issue
in businesses failing. For example, a business employing less than 20 people is statist-
ically nearly twice as likely to fail as one employing over 1,000 people.16.2 Corporate objectives
In the context of larger businesses, we reached the conclusion that maximisation
of shareholder wealth is a reasonable statement of the goal that most businesses are
likely to pursue. How different is this likely to be for smaller ones?Management goals versus shareholder goals
With larger businesses, where the managers are probably not very substantial share-
holders, conflict can arise between the objectives of each group.
In the case of the small business, the managers and the shareholders are likely to be
substantially the same people, or at least closely connected. Thus agency problems,
and their potential associated costs, will possibly have little, or even no, impact on
the typical small business. This might lead us to the conclusion that, as managers
are likely to be substantial shareholders, they would make decisions following a pure
wealth-maximising goal more determinedly than would be the case in the typical
large business.
On the other hand, whereas the vast majority of investors who buy shares in large
businesses do so with only an economic motive, those who involve themselves in
smaller ones may well have other motives. These motives might include a desire to
experience the satisfaction of building up a business, a desire to lead a particular way
of life, or a desire to keep some (perhaps family) tradition alive. Since it is possible for
managers to know the personal objectives of the shareholders of the smaller business,
decisions can probably be made with these in mind.
Irrespective of what other goals may be pursued by a small business, decisions can-
not be taken that consistently ignore the question of wealth. A business that makes a
series of decisions, each causing wealth to diminish, will sooner or later fail.
The Department for Business Enterprise and Regulatory Reform (2008) survey indic-
ated that over 80 per cent of the owners of the small businesses involved were seeking
to grow. This is not necessarily the same as seeking to maximise wealth, but these two
objectives would certainly be consistent.
We can probably come to the conclusion that the wealth maximisation goal is very
important to small businesses and that, even where it is not necessarily the only object-
ive, it cannot be ignored.