Financial Accounting for Decision Makers

THE QUEST FOR WEALTH CREATION
A business is normally created to enhance the wealth of its owners. This may come as a 
surprise, as there are other objectives that a business may pursue that would fulfil the needs 
of others with a stake in the business.
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MEETING THE NEEDS OF OTHER STAKEHOLDERS 
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Although a business may pursue other such objectives, it is normally set up primarily with a 
view to increasing the wealth of its owners. In practice, the behaviour of businesses over time 
appears to be consistent with this objective.
Within a market economy, there are strong competitive forces at work that ensure that 
failure to enhance owners’ wealth will not be tolerated for long. Competition for the funds 
provided by the owners and competition for managers’ jobs will normally mean that the own-
ers’ interests will prevail. If the managers do not provide the required increase in ownership 
wealth, the owners have the power to replace the existing management team with a new team 
that is more responsive to their needs.
MEETING THE NEEDS OF OTHER STAKEHOLDERS
The points made above do not mean that the needs of other groups with a stake in the busi-
ness, such as employees, customers, suppliers, the community, are unimportant. In fact, the 
opposite is true, if the business wishes to survive and prosper over the longer term. For 
example, a business with disaffected customers may well find that they turn to another sup-
plier, resulting in a loss of shareholder wealth. 
Real World 1.3
provides examples of busi-
nesses that acknowledge the vital link between satisfying customers’ needs and creating 
wealth (value) for their owners (shareholders).
What other objectives might a business pursue? Try to think of at least two.
A business may seek:
■ 
to provide well-paid jobs and good working conditions for its employees;
■ 
to conserve the environment for the local community;
■ 
to produce products or services that will benefit its customers; and/or
■ 
to support local suppliers.
You may have thought of others.