To make as much money (profit) as possible for its shareholders, is invariably the answer that comes to most people's minds. Many companies even include this as part of their mission statement, just so no one ever forgets it .
But is that really right? As Peter Drucker has said, Profit is a cost of doing business not a reason for doing it. If a business doesn't make profits, it will have to close down as it will in effect be eroding capital and so be a drain on society.
Charles Handy in an interview in the Economic Times echoes this view. In response to the interviewer's question "You talk about companies having a unique purpose - surely the aim must be to make money?", Handy says
I don’t think it is. That’s really my point. You want to make money in order to do something, that is more important. If you are making cars you want to make –don’t you think—the best cars at that price because you believe that the country needs cars and they need cheap cars. For example, cars of a certain value that you do better then anyone else and you want to be proud of the type of cars you are producing and in order to do that you have to make money. And this is the part where the shareholders come in I think. They should be entitled to a return on their investment but the aim of the company should not be to make as much money as possible for them. They don’t deserve it because they are just betting on the company they need a fair return.
It’s rather like somebody giving me a mortgage on my house I pay them their due — a fee for the money they lend me but I am not going to work my guts out to make them more money — why should I do that for the people who have lent money to my company. The point of the company is to make the cars and they’ll be a profit from making the cars and from that profit I will give a reasonable amount of money to the people who provided the money in the first place.
Food for thought for all of us. Businesses ought to be started with the objective of addressing a need out there by providing a product or service at a reasonable price to customers and making a fair profit for the business in the process.
In the same interview Handy was also asked " You have advocated that shareholders need to be given far less management authority — why when it is their money that they are investing in companies?" and Handy responded saying,
I am talking about public shareholders of big corporations that do not go near the company. To call them owners seems to be absolutely ridiculous. I have shares in some companies — it is my money, but I am only at best betting on the organisation. If it goes up, I feel good and if it goes down I get rid of my shares and sell them — my bet has failed I don’t have any responsibility for the actions of that organisation I am really just betting on it.