Table of Contents
- Shareholder Wealth Maximization
- Goals and Objectives of the Management
- Analysis and Recommendation
In today’s business world, private firms are under pressure to follow ethical guidelines and to place a higher emphasis on shareholder wealth maximization than profit maximization. This seems to be a loss for the company’s management, yet the underlying reason for this goal may be something else entirely. This article aims to examine the Coca-Cola Company’s management goals and objectives, as well as to critically evaluate such methods and, if necessary, to provide recommendations.
Shareholder Wealth Maximization
When it comes to deciding whether the business’s objective should be profit maximization or shareholder wealth maximization, the management of a corporation finds it difficult. For the near term, the profit maximization goal may be pursued by the business management. The company’s goal should be to make as much money as possible by using resources efficiently and effectively. On the other hand, the business should focus on the long-term goal of increasing shareholder value. The company’s shareholders are interested in both long and short-term profits. The goal of wealth maximization should be pursued by business management for the long term, as it takes into account the following aspects.
- The risk or uncertainty associated with the performance and the return associated with the company performance.
- The wealth of the company for the long term is analyzed as the company has to plan for providing the long term return.
- The timing of providing the returns is also considered (Shim and Siegel, p.2).
If the company takes the long term objective then they can also fill their short their objective. If they are meeting the stockholder’s objective then the stockholders also invests in the company, as a result the investment will increase and the performance of the company would be better if they utilize those resources effectively. From the researcher point of view shareholder’s wealthy maximization should be the ultimate goal of the company.
Goals and Objectives of the Management
For analyzing the goals and objectives of a company the researcher has selected Coca-Cola Company which is listed in the New York Stock Exchange (NYSE) (MSN Money, “Coca-Cola Co”). The goals and objectives of the company are as follows.
- The company’s objective is to start at least one program related to physical activity in the countries where they are operating by the end of 2015.
- Reducing the carbon emission from the manufacturing unit of the company.
- For the development of the communities they are associating with the management has planned to return 1% of the operating income to the communities.
- Packaging material efficiency improvement.
- Improvement of the water efficiency.
- The wastewater treatment improvement is among the main goals of the company (The Coca-Cola Company, “Global Sustainability- Select Goals and Targets”).
- The goals of the vision 2020 package of Coca-Cola is to make the profit margin double from now, enhance their portfolio
- They work with 300 bottling partners and are working for the growth target in terms of the operating income and unit cases of volume (The Coca-Cola Company, p.2-33).
Among these objectives, the company’s strategic objectives, such as increasing operating income, increasing unit case volume, enhancing the portfolio, or improving packaging material efficiency, support the shareholders’ wealth maximization goals while also maintaining corporate social responsibility. They have aspirations to improve communities in the nations where they operate, as well as to be environmentally responsible via their initiatives.
Analysis and Recommendation
The Coca-Cola Company has a long-term plan. According to Michael Porter, the business environment will change, but the long-term strategy of the firm should not, and the organization should have a strong long-term plan so that it may gain an advantage over rivals. Coca-Cola has a long-term plan in place. The business has surpassed its operational income and volume unit case goals set for the previous fiscal year. As a result, the business not only has a sound plan, but they are also on track to meet its objectives. The business has set a goal for itself to improve operational income and volume unit cases in the future. The company management has also taken the target of doubling the profit margin as part of their vision 2020; also they are targeting to enhance their portfolio. Also the company management has the objective of increase the efficiency of the manufacturing units. All these initiatives are certainly the boost for the company stockholders as there is the probability of getting the higher return. Also the company has started or going to start some community development programs which will increase the reputation of the company. So there is the chance of increase the profit and as well as the shareholder’s return. As the manufacturing process of the company would be more efficient so the price of the products will decrease so the consumers of the company can get the chance to enjoy the same product in a lower price.
After analyzing the goals and objectives of the company it can be said that the strategy of the company is robust, the aim of the company is to maximize the shareholders’ wealth. But some objectives can be added in the regarding the benefits of the employees. Employees are one of the two most important parts of the company (the other one is the customer). The employee benefits should be increased and it should be addressed properly by the company for retaining the employees.
From the report it has been found that the companies should have the objective of maximizing the shareholder’s return as it fulfills the long term objective of the company as well as the short term objectives. Analyzing the goals and objectives of Coca-Cola it has been found that the company’s aim is to meet the objective of shareholder’s wealth maximization. Their strategies for improving the efficiency of manufacturing, the target of improving the profit, developing the communities and environment aid program are meeting the need of the shareholders and other stakeholders. Subsequently the researcher has suggested emphasizing more on the employee benefits and addressing it in the objectives as they are the important part of the company.
- Shi, J. and Siegel, J. Financial Management. China: Barron’s Educational Series. 2008.
- The Coca-Cola Company. Global Sustainability- Select Goals and Targets. 2009. Sustainability Review. January 28, 2012 < http://www.thecoca-colacompany.com/citizenship/pdf/2008-2009_sustainability_review.pdf >.
- The Coca-Cola Company. The 2020 Vision. 2011. 2010 Annual Review. January 28, 2012 < http://www.thecoca-colacompany.com/ourcompany/ar/pdf/TCCC_2010_Annual_Review.pdf>.
- MSN Money. Coca-Cola Co. 2011. Investing. January 28, 2012. < http://investing.money.msn.com/investments/stock-price?Symbol=KO&ocid=qbeb>.
- Kontes, P. The CEO, Strategy, and Shareholder Value: Making the Choices That Maximize Company Performance. United States of America: John Wiley and Sons.