Maximizing Profits Over the Long Run: A Stakeholder-Focused Essay

This essay critically evaluates the statement that managers should prioritize long-run profit maximization, emphasizing its importance for business sustainability and stakeholder satisfaction. It explores the concept of corporate governance and its role in balancing the interests of shareholders, investors, employees, customers, and society. The essay argues that profit is essential for business survival, expansion, and fulfilling responsibilities like corporate social responsibility (CSR). It references various academic sources to support the view that managers should focus on long-term benefits and wealth maximization, which ultimately leads to stronger relationships with stakeholders, improved business reputation, and contributions to the economy. The essay concludes that profit maximization ensures healthier stakeholder relations and aids in enhancing the business further.

“Managers should concentrate on
maximising profits over the long run.
If they do this effectively, they will have
to take other stakeholders into
account”
1

For any business to sustain in the market, it is required to earn considerable amount of
profit. Also, a business possess different types of stakeholders and each possess their own
interest and objectives. Hence, to fulfil all such objectives, a business need to be profitable.
Considering this, present essay is developed that focus on critically evaluating the statement
that manager should ensure profit maximisation in longer run. In this, emphasize is laid on
concept and motive of corporate governance as well.
Profit is essential for business and it helps in sustaining in market and also supports in
expanding it further. It is therefore manager must focus on boosting the performance in long
run in order to meet with varied needs of associated stakeholder. Kurata and Nam, (2013)
commented that business includes stakeholders like shareholders, investors and bankers who
have invested huge money to initiate the business. Their main objective is to get regular
return and same can be done if business earns the profit. It is stated by Grant, (2016) that
investors and shareholders can bear loss one or two time but business need to earn profit in
long run in order to gain support from these stakeholders. Further Levinthal and Wu, (2010)
stated that business have prime responsibility to offer job security and financial support to its
employees which is only be attained if business earn the profit. Considering this, manager
should always focus on long run profit.
Jensen, (2010) has commented that manager can offer great discount to customers
once in order to develop relations with them. By doing so company may bear loss but it will
surely result into repeat purchase from that customers. Hence, manager must look for long
term benefit instead of short run motive. Additionally, Gill, Biger and Mathur, (2010) stated
that if business start charging price with high profit margin, then it will help in earning short
term profit but it will certainly leads to decline in sale in long run and business will run out.
Therefore, managers should always look for long term benefits than that of short run.
However, Joshi and Hanssens, (2010) argued that business should not always focus on profit
maximisation, it should also emphasize on wealth maximisation in order to sustain for longer.
Through wealth, overall reputation of business is developed and it certainly helps in meeting
business objectives.
Apart from it, business possess responsibility towards society as well. Kopel and
Brand, (2012) commented that a business must return to society as part of moral
responsibility. It can be done in the form of corporate social responsibility (CSR) by helping
the needy people. However, CSR incurs huge expenses and therefore a business must be
profitable in order to accomplish this objectives. If business is not earning profit in long run,
2

then it cannot certainly afford to do CSR activities. Hence, to meet all set of objectives, a
manager must focus on profit maximisation in long run. Further, as per Carol pyramid, a
business possess philanthropic responsibility and it is only possible if business earns good
amount of profit.
Further, Gill, Biger and Mathur, (2010) stated that government is one among the key
stakeholder of business and it also has certain objectives towards business. It includes
following every set of rules and paying tax as payable. Hence, to fulfil this objective a
business must earn profit so that return to government can be done. Further, business have
economic responsibility as well which states that company must be profitable in order to add
to economy of country. This can only be done if business is earning good profit and adding
into the economy. By considering this, it can be state that a manager must focus on profit
maximisation in long run as all the objectives of stakeholders can be fulfilled through it only.
Also, corporate governance ensures that business should earn profit so that justice to
resource of the company is done. Also, business loan and credits can only be sanctioned if the
company possess high creditability and profit margin. Corporate governance focuses on
balancing the motive of varied stakeholders of business i.e. shareholder, suppliers, customers,
employees, investors, government and society. This can only be done if business is
generating enough revenue and hence is sustaining in business (Tricker and Tricker, 2015).
Therefore, it can be state that corporate governance also focus on profit maximisation motive
of business and it helps in settling the needs of linked stakeholders. It has direct role in
attaining long term objectives of the firm. Without profit, a business in like a burden to
society which spoils overall economy of country as well.
Based on this discussion, it can be state that a manager should emphasize on earning
long term profit in order to settle out the objectives of each stakeholder. Profit maximisation
ensures healthier relations with different stakeholders of the business and aids in enhancing
the business further. Through this, society can be benefits in terms of CSR activity of the
business and government is also able to receive revenue. Hence, a business should always
focus on boosting the profit in long run in order to attain varied objectives and
responsibilities.
3

REFERENCES
Gill, A., Biger, N. and Mathur, N., 2010. The relationship between working capital
management and profitability: Evidence from the United States. Business and
Economics Journal. 10(1). pp.1-9.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Jensen, M.C., 2010. Value maximization, stakeholder theory, and the corporate objective
function. Journal of applied corporate finance. 14(3). pp.8-21.
Joshi, A. and Hanssens, D.M., 2010. The direct and indirect effects of advertising spending
on firm value. Journal of Marketing. 74(1). pp.20-33.
Kopel, M. and Brand, B., 2012. Socially responsible firms and endogenous choice of
strategic incentives. Economic Modelling. 29(3). pp.982-989.
Kurata, H. and Nam, S.H., 2013. After-sales service competition in a supply chain: Does
uncertainty affect the conflict between profit maximization and customer satisfaction?.
International journal of production economics. 144(1). pp.268-280.
Levinthal, D.A. and Wu, B., 2010. Opportunity costs and non‐scale free capabilities: profit
maximization, corporate scope, and profit margins. Strategic Management Journal.
31(7). pp.780-801.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
4