“The directors of a firm are ultimately responsible to one g

Strictly speaking this statement is false, but with a slight adjustment could be arguably be correct. The governments of countries both as individuals and as

members of trading blocs have drawn up legislation to regulate how businesses operate. If we perceive the above statement as meaning that after legislation has been complied with the directors are ultimately responsible to just the shareholders, then it may have some merit. Milton Friedman said “The business of business is business, a company only has to fill its legal obligations and no more”. The directors are elected by shareholders for the sole purpose of increasing the profitability of the company either through higher dividends or a rise in share price, the majority of shareholders are not interested in the running of the company once this criteria is being met.

So if we take this view it seems quite reasonable that directors are hired and paid by the shareholders, therefore they are indeed ultimately responsible to them. unfortunately things aren’t so clear-cut, the directors certainly are responsible to the shareholders, they are employed to run the firm for t

So in reality the directors are ultimately responsible to their shareholders, to increase their wealth by either increasing dividends or raising share prices, but in order to reach this requirement they must assume responsibility for all elements of the business environment that affect them. By recognising and assuming these responsibilities the directors can save money by dealing with issues before they arise and start costing their shareholders money.

Every business requires human input, if we take the view that directors are only responsible to shareholders then their only responsibility is to pay their staff is to meet government guidelines, in other words to pay the bare minimum wage and provide adequate working conditions and so on. The problem with this is quite plain, human nature dictates that the more we put into something the more we expect to get out of it and generally this works both ways, the more we get out of something the more we are willing to put in. if the firm only pays the minimum wage to all its workers it will find it impossible to fill the more demanding positions such as management. The reason for this is simple; no one will want to do the hard work if they can get paid exactly the same for doing an easier job. it follows then that people must be rewarded on at least the basis of the work they do if not that of the work they will do if the right incentive is given. Another problem with just allowing staff the minimum that they are legally entitled to is that morale will be low which will mean the company will not be reaching its target levels of production or at least its potential levels of production. Unhappy staff may also lead to industrial disputes, which could l

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