Maximizing Shareholder Value: A Dumb Idea

[Jacob]

So says Forbes magazine: http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/

There are plenty of people here who know more about these things. What do you say?

[Malthus]

The problem has always been how to determine if the business is doing well. Ideally stock prices are supposed to reflect this, but of course they can be gamed in various ways.

Problem is, so can all other measures of performance.

The football analogy does not work, because of course anyone can see who is the better football team - it's the one that wins the game and does so consistently. It isn't so easy to see who has the better company, because that involves lots of factors. selling the most widgets isn't a great measure, because a company could be selling all sorts of widgets and be losing money.

[Slargos]

I was going to say "P/E" but then I realized the folly.

I think the trick is to remove all the jews from finance in order to clean it up a bit.

[The Brain]

Minimizing shareholder value has been tried a lot.

[MadImmortalMan]

The article is really about the expectations game being more important than delivering actual value, and I agree completely. Although at least right now, all those things are out the window and the only thing that actually brings shareholder value in anything is whatever the newest rumor coming out of Angels Merkel's office happens to be.

Also, Peter Drucker was awesome.

[Barrister]

Yeah - the main thrust of the article isn't what the title says - that maximizing shareholder value is unimportant.

But rather, that maximizing shareholder value in the very short term, combined with executive pay being tied to those short term fluctuations, is a terrible idea.  It's hard to disagree with that argument.

[CountDeMoney]

Yeah - the main thrust of the article isn't what the title says - that maximizing shareholder value is unimportant.

But rather, that maximizing shareholder value in the very short term, combined with executive pay being tied to those short term fluctuations, is a terrible idea.  It's hard to disagree with that argument.

How dare you question capitalism.

[mongers]

Yeah - the main thrust of the article isn't what the title says - that maximizing shareholder value is unimportant.

But rather, that maximizing shareholder value in the very short term, combined with executive pay being tied to those short term fluctuations, is a terrible idea.  It's hard to disagree with that argument.

How dare you question capitalism.

I have a spare tent if you want one.   

[Tonitrus]

Recently saw an excellent 1950's William Holden film on this very topic, "Executive Suite".

Basically, after the death of a manufacturing company's CEO, in the fight to replace him, Holden portrays the innovative, hands-on director who believes in producing quality products the company and workers can be proud of, versus the bookkeeping number-cruncher who is only interested in maximizing investor profits by producing cheap crap.

Some things never change.

[Admiral Yi]

Recently saw an excellent 1950's William Holden film on this very topic, "Executive Suite".

Basically, after the death of a manufacturing company's CEO, in the fight to replace him, Holden portrays the innovative, hands-on director who believes in producing quality products the company and workers can be proud of, versus the bookkeeping number-cruncher who is only interested in maximizing investor profits by producing cheap crap.

Some things never change.

That sounds like a different topic.

[CountDeMoney]

Yeah - the main thrust of the article isn't what the title says - that maximizing shareholder value is unimportant.

But rather, that maximizing shareholder value in the very short term, combined with executive pay being tied to those short term fluctuations, is a terrible idea.  It's hard to disagree with that argument.

How dare you question capitalism.

I have a spare tent if you want one.   

Don't give me any shit, Lance.  I'm up to my ass in a mega Fortune 500 M & A ass rape.  Unlike some of the GOPtards around here watching from the upper deck, who like to pontificate on invisible hands and market equilibrium while they still have Greenspan's spooge stains on them, I'm down in the fucking huddle of Corporate Fucking America.

I AM maximized shareholder value.*







*most likely to be eventually eliminated, and contracted out to a concern in Mumbai, India.

[viper37]

maximizing shareholder value does not have to be short term.  In fact, a majority of corporations aim for the long term, and there are performance measures (like EVA) that reward real wealth creation, not simply share price increase.

The agent theory isn't definite, there's still a lot of research to be done on this.  But we know it's valid.  Just like in physics researchers can understand there's "something there", but can't really define it.

Also keep in mind that finance is a very young science (1950s for the early works, when it branched out of economics), and corporate finance in itself only became interesting in the 1990s, with the advent of the personal computers.  Before that, most finance works where on portfolio theories, not really corporate governance.

[mongers]

maximizing shareholder value does not have to be short term.  In fact, a majority of corporations aim for the long term, and there are performance measures (like EVA) that reward real wealth creation, not simply share price increase.

The agent theory isn't definite, there's still a lot of research to be done on this.  But we know it's valid.  Just like in physics researchers can understand there's "something there", but can't really define it.

Also keep in mind that finance is a very young science (1950s for the early works, when it branched out of economics), and corporate finance in itself only became interesting in the 1990s, with the advent of the personal computers.  Before that, most finance works where on portfolio theories, not really corporate governance.

That falls into the same FAIL bin as 'Social Sciences'.

[DGuller]

Unlike some of the GOPtards around here watching from the upper deck, who like to pontificate on invisible hands and market equilibrium while they still have Greenspan's spooge stains on them,

  You sure have a way with words.

[viper37]

That falls into the same FAIL bin as 'Social Sciences'.

Social sciences doesn't even try to rely on math models to predict the outcome of a given policy, or to explain any social movement.  It's just based on feeling.