The World's Dumbest Idea: Maximizing Shareholder Value

[Siege]

The companies that do not maximize shareholder value, whether by share value increase or higher return, shall lose their market share to those who do.
It is simple economic Darwinism.

[Admiral Yi]

The companies that do not maximize shareholder value, whether by share value increase or higher return, shall lose their market share to those who do.
It is simple economic Darwinism.

Not necessarily.  Consumers purchase on the basis of price and quality, not return on equity.  It's theoretically very possible for a company to produce a world class product at a reasonable price (or a commodity product at an awesome price) and transfer most or all of the profit to its employees.

The principle problem I have with this whole Shareholder Value (tm) discussion, which I've mentioned before, is that the people doing the church lady bitching should put their money where their mouths are.  If you don't care about how much your money earns, that's great, more power to you.  Start up a company that overpays and never fires anyone, or alternatively find an investment fund that only puts your money in "socially responsible" companies. 

[PDH]

But socially responsible companies suck!

[CountDeMoney]

The principle problem I have with this whole Shareholder Value (tm) discussion, which I've mentioned before, is that the people doing the church lady bitching should put their money where their mouths are.  If you don't care about how much your money earns, that's great, more power to you.  Start up a company that overpays and never fires anyone, or alternatively find an investment fund that only puts your money in "socially responsible" companies.

Lulz, how Romneytacular.  Don't like America's business model?  Borrow money from your parents and go start your own company.

[garbon]

IBM also helped Hitlar!!!1111 wah wah wah

That is why if I boys get any IBM products I am going to wait until they are asleep and then burn them.  Boy will they learn their lesson when their new server array gets torched.

[DGuller]

The companies that do not maximize shareholder value, whether by share value increase or higher return, shall lose their market share to those who do.
It is simple economic Darwinism.

Not necessarily.  Consumers purchase on the basis of price and quality, not return on equity.  It's theoretically very possible for a company to produce a world class product at a reasonable price (or a commodity product at an awesome price) and transfer most or all of the profit to its employees.

The principle problem I have with this whole Shareholder Value (tm) discussion, which I've mentioned before, is that the people doing the church lady bitching should put their money where their mouths are.  If you don't care about how much your money earns, that's great, more power to you.  Start up a company that overpays and never fires anyone, or alternatively find an investment fund that only puts your money in "socially responsible" companies.

The problem with your problem is that you ignore the issue of individually rational decisions amounting to irrational social outcome.  Not every problem can be solved with an alternative business model.

[Caliga]

Well there are companies like IBM who seem to be burning bridges and risking serious long term issues just to appear a bit better on the next quarterly report thanks to cutting on wage costs.

I think the problem is that managers who are payed after such reports are not motivated to think long-term.

Sort of.  I think it's got to do to a large extent with the almighty bonus.  I have seen horrible business decisions made because someone had 'x' on their goals list so 'x' had to be achieved no matter the risk in order to guarantee the massive bonus that person thinks they are entitled to.

[Admiral Yi]

The problem with your problem is that you ignore the issue of individually rational decisions amounting to irrational social outcome.  Not every problem can be solved with an alternative business model.

We weren't talking about every problem, we were talking about very specific problems.  And the very specific problems we were talking about can be ameliorated by people acting in accordance with their self proclaimed principles.

[DGuller]

Well there are companies like IBM who seem to be burning bridges and risking serious long term issues just to appear a bit better on the next quarterly report thanks to cutting on wage costs.

I think the problem is that managers who are payed after such reports are not motivated to think long-term.

Sort of.  I think it's got to do to a large extent with the almighty bonus.  I have seen horrible business decisions made because someone had 'x' on their goals list so 'x' had to be achieved no matter the risk in order to guarantee the massive bonus that person thinks they are entitled to.

I agree.  I've come to believe that quantifying the goals is often a disastrous mistake, unless you're running a factory or something.  What eventually happens is that only quantifiable goals get the love, and intangible assets get destroyed in the pursuit of tangible numbers.

[Monoriu]

If maximising shareholder value should not be the top priority, then what should be?

[Grallon]

I think the problem is not maximising shareholder value but maximising short-term shareholder value. Perhaps we need CRD-style regulations for all listed companies, not just financial institutions (it requires that a substantial portion of listed companies' CEOs' remunration to be deferred over a period of 5 years and based on performance over such period).

Human and short term are synonymous Martinus.  Human maggots shouldn't be allowed a free rein in anything other their their private lives, which they can spend, or expand, or wreck, however they see fit.  Anything else that transcend their narrow, limited an egotistical existences should be heavily regulated. 

A corporation is nothing more than a fulcrum for those who control it; multiplying their strengths and/or their weaknesses.  Therefore, granting those entities anything beyond limited latitude is a recipe for disaster.  The implosion of 2008 should be evocative enough to illustrate my point...



G.

[garbon]

should be heavily regulated. 

By...other humans?

[Grallon]

By...other humans?

By other humans not directly involved in the... proceeds.  Yes... most definitely. 

Believe or not garbon, we humans *are* capable of thinking outside the box.  But only, and solely, if we're not emotionally or otherwise directly involved/invested in whatever is under current scrutiny.



G.

[Siege]

Regulations will kill us all, and our economy,  and hand over our collective head to China in a platter.

[Monoriu]

Regulations will kill us all, and our economy,  and hand over our collective head to China in a platter.

You overvalue your collective heads.  China only wants your money