Question

It is commonly believed that the primary objective of senior management for a profit-seeking publicly traded corporation is to maximize revenues, profits, and market share. Explain some of the dangers with CEOs that operate with this rationale.

Answer 1

Though It is true that in today's world where every public company CEO has to focus on meeting the quarterly, half yearly, or annually financial targets of the company. If they do not meet these expectation, they have to explain the reason behind these to their boards, shareholders, analyst during press conference and other stakeholders. Also, consistently not meeting these targets may effect the stock price of the company negatively. The senior management might loose their job. Its not completely the fault of the top management when they focus solely on these numbers like Revenue, profits, and market share, its just that the business environment has become very competitive and if they want to survive they have to think short term, medium term as well as long term. They can't ignore any aspect of it. Despite all of this, the senior management can't solely focus on revenue, profits or market share. The issue associated with these are:

Missing the Large picture: When company management focuses on profit maximization, their focus becomes short term to meet the market expectation and in that process they avoid projects with long gestation periods but the big issue here is if you do not focus on innovation beyond a certain point the organisation product will become outdated and you will loose your customer eventually.

Hurting the other Important stakeholders: When you are focusing solely on prfit maximization you have to reduce cost. In that process you might not pay your employees decent salary or you might not pay on time to your supplier. This will hurt the company because these are very important stakeholders of the organisation and eventually they will leave.

Disregard for the environment or society: when you are making a product you can't just be focused on the profit margin of the product. The companies who are in the mining business or pharmaceuticals business, they have to especially careful to keep their actions with respect to certain ethical level. Not paying attention to your society or environment will harm the public image of the company.

Ignoring the risk associated with projects: When the management is solely focussed on increasing profit, they might go for projects with large profits but that comes at high risk. In the event that project did not go well this might cause corporations to loose the capital and might force them to bankruptcy.