shareholder value

429 results

pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

Secondly, neoliberalism was sweeping the world by the 1980s, and with it the idea that the ruthless pursuit of profit was the only responsibility of any corporation.5 This translated into a simple imperative for corporate executives: maximise shareholder value.6 The valorisation of profit was cemented as managers’ pay packages were linked to share prices, ensuring that they would faithfully pursue the interests of their shareholders. As neoliberals gained control of many political parties, states actively began to encourage such behaviour. The ideology of shareholder value was institutionalised in a corporate code that reinforces the idea that the function of a business is to maximise its profits, consequences be damned. The rise of the institutional investor and shareholder value ideology have had a lasting impact on corporate power in both the US and the UK.7 Most corporations are now structured around the interests of shareholders, with workers’ interests coming last, if they are even considered at all.8 As this process has developed, a battle has emerged between certain types of shareholders over others.

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This change in corporate governance has also been reinforced and embedded by the emergence of a new ideology: shareholder value. Together, the increasing power of investors and the emergence of an ideology to support this power has led to the financialisation of the non-financial corporation: businesses are increasingly being used as piggy banks for rich shareholders. This, according to the CEO of General Electric, makes shareholder value “the dumbest idea in the world”34. But like many dumb ideas that enrich the powerful, shareholder value took off in the 1980s — and nowhere more so than in the City of London. Corporate Raiders, Hostile Takeovers, and Activist Investors Lord Hanson — aka “Lord Moneybags” — is famous for many things.35 He was engaged to Audrey Hepburn, had a fling with Joan Collins, and also happens to be one of the UK’s most notorious corporate raiders.

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Adherence to the flawed ideology of shareholder value has created a set of deep-seated problems with British capitalism.40 As you would expect, the ideology of “shareholder value” encouraged companies to distribute their profits to shareholders rather than distributing them internally or using them for investment, which curtails long-term profitability to facilitate a short-term boost in the share price. Failing to retain and properly remunerate workers erodes trust between workers and their employers, which can negatively impact productivity. William Lazonick argued that the rise of shareholder value ideology has led to a transformation in the philosophy of corporate governance — the way in which corporations are run — from “retain and invest” to “downsize and distribute”.

The Art of Scalability: Scalable Web Architecture, Processes, and Organizations for the Modern Enterprise
by Martin L. Abbott and Michael T. Fisher
Published 1 Dec 2009

The increase in equity price creates shareholder value. Operations teams are responsible for ensuring that systems are available when they should be available in order to keep the company from experiencing lost opportunity with their systems. Doing that well also contributes to shareholder value by 85 86 C HAPTER 4 L EADERSHIP 101 maximizing productivity or revenue, thereby increasing the bottom line either through increasing the top line or reducing cost. Again, increasing the bottom line (net income or profits) increases the price shareholders would be willing to pay and increases shareholder value. Quality assurance teams help reduce lost opportunity associated with the deployment of a product and the cost of developing that product.

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Get the job done on time, but ensure you are doing it while taking care of your people. • Be morally straight always. What you allow you teach and what you teach becomes your standard. • Align everything you do with shareholder value. Don’t do things that don’t create shareholder value. • Vision is a vivid description of an ideal future. The components of vision are q Vivid description of an ideal future q Important to shareholder value creation 87 88 C HAPTER 4 L EADERSHIP 101 q Measurable q Inspirational q Incorporate elements of your beliefs q Mostly static, but modifiable as the need presents itself q Easily remembered • Mission is the general path or actions that will get us to our vision.

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Such statements alienate the rest of a team and very often push the very highest performing individuals—those actually getting stuff done—out of the team and out of the company. These actions and statements run counter to building the best team and over time will serve to destroy shareholder value. The best leaders give of themselves selflessly in an ethical pursuit of creating shareholder value. The right way to approach your job as a leader and a manager is to figure out how to get the most out of your team in order to maximize shareholder wealth. You are really only a critical portion of that long-term wealth creation cycle if your actions evolve around being a leader of the team rather than an individual.

pages: 237 words: 50,758

Obliquity: Why Our Goals Are Best Achieved Indirectly
by John Kay
Published 30 Apr 2010

Even then we will never know whether the life that was lived or the education that was received, the business that was created or the poem that was written was the best possible. No one will be buried with the epitaph “He maximized shareholder value,” not just because the objective is an unworthy intermediate goal rather than a high-level objective but because, even with hindsight, no one can tell whether the goal of maximum shareholder value was achieved. If shareholder value was indeed maximized at ICI or Boeing, it was maximized obliquely. The epitaph on men such as Henry Ford, or Bill Allen, or Walt Disney, or Steve Jobs reads instead: “He built a great business, which made money for shareholders, gave rewarding employment and stimulated the development of suppliers and distributors by meeting customers’ needs that they had not known they had before these men developed products to satisfy them.”

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Boeing stock, thirty-two dollars when Condit took over, rose to fifty-nine dollars as he affirmed the commitment to shareholder value; by the time of his forced resignation in December 2003 it had fallen to thirty-four dollars. Condit’s successors once again emphasized civil aviation. The 777 is a success, and the Dreamliner appears a better vehicle for the future than the huge Airbus 380. By 2008 Boeing had regained its leading position in commercial aviation and the share price its earlier value. At Boeing, as at ICI, shareholder value was most effectively created when sought obliquely. That profit-seeking paradox, like the conundrum of happiness, illustrates the power of obliquity.

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But the last word in this chapter should go to Jack Welch, CEO of General Electric from 1981 to 2001. Welch was not just America’s most admired businessman but a darling of Wall Street. The rise in the market capitalization of GE during Welch’s tenure represented the greatest creation of shareholder value ever. Ten years into retirement, he told the Financial Times: “Shareholder value is the dumbest idea in the world.”20 Elaborating his thought to Business Week a few days later, he explained:The job of a leader and his or her team is to deliver to commitments in the short term while investing in the long term health of the business. . . .

pages: 330 words: 99,044

Reimagining Capitalism in a World on Fire
by Rebecca Henderson
Published 27 Apr 2020

One hundred and eighty-one CEOs committed to lead their companies for “the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.”13 The Council of Institutional Investors (CII)—a membership organization of asset owners or issuers that includes more than 135 public pension and other funds with more than $4 trillion in combined assets under management—was not amused, responding with a statement that said, in part: CII believes boards and managers need to sustain a focus on long-term shareholder value. To achieve long-term shareholder value, it is critical to respect stakeholders, but also to have clear accountability to company owners. Accountability to everyone means accountability to no one. BRT has articulated its new commitment to stakeholder governance… while (1) working to diminish shareholder rights; and (2) proposing no new mechanisms to create board and management accountability to any other stakeholder group.14 One of the world’s largest financial managers insists that “the world needs your leadership,” and some of the world’s most powerful CEOs publicly commit to “stakeholder management,” while many businesspeople—like my (hugely successful) CEO friend and many large investors—think they are asking for the impossible.

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How We Got Here A central cause of the problems we face is the deeply held belief that a firm’s only duty is to maximize “shareholder value.” Milton Friedman, perhaps the most influential intellectual force in popularizing this idea, once stated that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” From here it’s not far to the idea that focusing on the long term or the public good is not only immoral and possibly illegal but also (and most critically) decidedly infeasible. It is true that the capital and product markets are ruthless places. But in its current incarnation, our focus on shareholder value maximization is an exceedingly dangerous idea, not just to the society and the planet, but also to the health of business itself.

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The Chicago-trained economists blamed the economy’s lackluster performance on the fact that many managers were putting their own well-being before their duty to their investors. Their suggested solution—to tie executive compensation to shareholder value—was eagerly embraced by investors. Managers were told that they had a moral duty to maximize profits—indeed that to do anything else was actively immoral—and CEO pay was linked tightly to the value of the company’s stock. GDP took off like a rocket and with it, shareholder value and CEO pay.26 But… meanwhile, the environmental costs of this growth—trillions of tons of greenhouse gases in the atmosphere, a poisoned ocean, and the widespread destruction of the earth’s natural systems—remained largely invisible.

pages: 318 words: 91,957

The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy
by David Gelles
Published 30 May 2022

When asked about his long history of prioritizing investors above all else, he tried to distance himself from his singular contribution to the modern economic system. “On the face of it, shareholder value is the dumbest idea in the world,” he declared, eschewing the very priorities he embodied. “Shareholder value is a result, not a strategy.… Your main constituencies are your employees, your customers and your products.” Coming from Welch, the assertion was laughable. He had been the first CEO to focus on shareholder value to the exclusion of all else, and he knew it. It was right there in his 1980 memo to Reg Jones as he vied for the top job. But just as he had reinvited himself in retirement, he was now rewriting his history as CEO, too.

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Nothing, however, compared to his pronouncement that shareholder value was “the dumbest idea in the world.” Many commentators remarked on the rich irony when Welch made his remark. But repeat a lie often enough and it becomes the truth, and with time Welch’s quote has been accepted at face value, to the point that today it’s common to find Welch cited as one of the leading critics of the very movement he pioneered. Forbes has run headlines such as “The Dumbest Idea in the World: Maximizing Shareholder Value,” and Welch is sometimes given credit for “seeing the light” and becoming “one of the strongest critics of shareholder value.” “Go, go, go” In 2011, Boeing CEO Jim McNerney received a call that shook him to the core.

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No longer is the purpose of a corporation to maximize shareholder value, according to this new cohort of enlightened captains of industry. Instead, CEOs are talking about themselves as part of an interconnected whole—just as they had done a half century ago, before Welch came on the scene. Stamping out Welchism will be a formidable challenge. The great hero of late-twentieth-century American capitalism, Welch occupies an exalted place in the business world’s collective imagination. Even today, with the ruinousness of his methods clear to see, he is revered as a master strategist, peerless in the art of maximizing shareholder value and empire building.

pages: 265 words: 75,202

The Heart of Business: Leadership Principles for the Next Era of Capitalism
by Hubert Joly
Published 14 Jun 2021

A., 228 Minneapolis Institute of Art, 204 minority employees, 90–91, 152, 159–164 Mohan, Mike, 83, 158 Morhaime, Mike, 85 Mulally, Alan, 42–44, 115, 153–154 Musset, Alfred de, 37 Nacchio, Joseph, 214 Nadal, Rafael, 191 Nadella, Satya, 198–199 Napoleon, 200–201 Naraine, Gayatri, 238n7 Nelsen, Keith, 161 New England Conservatory, 189–190 Newman, John Henry, 195 Niedenthal, Paula, 214 Nike, 89, 172 Nikon, 86 Nissan, 214 Noska, Matt, 100 O’Reilly, Charles, 152 Pacino, Al, 192 participative process, 173–175 perfectionism counterproductive striving for, 38–39, 42–43, 45 fear of failure and, 44, 45 feedback as critique of, 39–42 good-enough plans vs., 110–112 human connection effects of, 38, 42, 45 “I don’t know” acceptability vs., 44 imperfection vs., embracing, 38, 41–45 leadership insertion and, 40, 46–47 mental health effects of, 42 outstanding performance vs., 38 problems with, 37–47 religious and theological views of, 37–38, 39 performance assessments of, 188–191, 235 (see also feedback) autonomy improving, 169 feedback evaluating, 39–42, 155 financial incentives not driving, 125–129, 243n4 human connections driving, 148–151 individual development of, 184–185, 189–191 irrational performance with human magic, 6, 117, 181 mastery in, 181–193, 245n3(ch 12) metrics for, 94, 100–101, 113, 130, 184–185, 186–187 outstanding, perfection vs., 38 problems with, embracing and improving, 42–44 (see also vulnerability, encouraging) rankings of, 45, 189 self-assessments of, 188–189 strength building and, 190–191 personal experiences, sharing, 147–148, 155–156 Pew Research Center, 28, 240n1 Pfeffer, Jeffrey, 152 Pink, Daniel, 126, 167 Pliner, Eric, 46–47, 157–158, 170–171 Polgar, Alfred, 238n13 Polman, Paul, 89 Porter, Michael, 218 productivity, 15, 16, 17, 185 profits corporate blind pursuit of, 4, 6, 61, 183 dangers of singular focus on, 57–59 employee engagement and, 15, 17, 57, 61–62 healthy approach to, 62 as misleading measure of economic performance, 56–57 as outcome of excellence, 64, 68, 73–74 scandals due to excessive focus on, 59 shareholder value and, 6, 51, 54–62, 63–65, 74, 192 stakeholders antagonized by singular focus on, 59–61 PTC, 57 Publicis, 111 Puerto Rican hurricane relief, 138–140 purpose of business, 4–5, 6–7, 51, 63–65, 233 (see also purposeful human organizations) discovery of personal, 29–32, 30f employees driven by, 32–34, 61–62, 65–68, 66f, 74, 133–145 framing in meaningful, human, and authentic way, 142–144 growth tied to, 203–204 of incentives, 129–131 leader’s clarity of, 222–223 “noble purpose,” 6, 66–71, 66f, 75, 79–95, 135, 203, 233 shareholder value maximization as, fallacy of, 6, 51, 54–62, 63–65 of work, 11, 23–28, 31, 32–35 purposeful human organizations active engagement with purpose in, 79–95 aspirational goals and vision in, 70 capitalism reinvention by, 62, 65, 73, 74–77 community support and connections in, 68, 72, 88–91 customer delight as goal of, 83–85 customer loyalty to, 64, 67–68, 71–72, 74 employees driven by purpose in, 61–62, 65–68, 66f, 74 environmental and social issues addressed in, 72, 74, 75–76, 88–91, 92, 94 examples of, 72–73 human connections fostered in, 65–77, 66f human magic in (see human magic) inspiration from purpose in, 70–72 interdependence in, 66f, 68 management practices in, 93–95 overview of, 6, 51 profits as outcome of excellence in, 64, 68, 73–74 shareholders rewarded in, 91–92 shareholder value maximization fallacy for, 6, 51, 53–62, 63–65 stakeholders embraced and mobilized in, 82–92 strategy based on purpose in, 66, 74–75, 80–82 supplier and competitor partnerships in, 68, 85–88 turnarounds in, 51, 57, 69, 85, 91–93, 95, 97–117 purposeful leadership articulating principles of, 221 authenticity of, 228–229 clarity of purpose in, 222–223 clarity of role in, 223–224 clarity of service goals in, 224–226 five “Be’s” of, 222–229 overview of, 6, 209 values driving, 218, 226–228 Qwest, 214 racial and ethnic minority employees, 90–91, 152, 159–164 Radio Shack, 2 Radisson Hotels, 41 Ralph Lauren Corporation, 72–73, 89, 143, 202 Rankin, Howard, 162 RASCI (responsible, accountable, supporting, consulted, or merely informed) decision making model, 47, 171–172 rating agencies, calls for action, 235 regulators, calls for action, 235 religion and theology effort vs. outcome focus in, 183–184, 245n3(ch 12) interdependence philosophy echoing, 68 perfection views in, 37–38, 39 purpose discovery using, 29 spirituality as driving force, 138 work views in, 18–19, 24–26, 183, 238n7, 238n11 remote working, 176–177 Rezidor Hotel Group, 199 Rickover, Hyman G., 79 Ritter, Kurt, 199 role modeling, 141 ROWE (results only work environment), 176–177 Sacilor, 213 safety, environment of, 150–151, 153–154, 193, 227–228 Saksena, Asheesh, 197–199 Salesforce, 54, 89–90 Samsung Electronics, 86–87, 196 Samuel (Father), 37–39, 41, 47 Scarlett, Kamy, 144, 147–148, 152, 153, 190 Schmidt, Chris, 184–185, 186 Schulze, Dick, 1–2, 102–104, 110, 123–125 scientific management, 127, 168 Sears, 58 service customer, 14–15, 21, 31, 34 leader’s clarity of goals for, 224–226 purpose tied to, 6, 30–31, 51, 67–68, 69, 75, 242n14 work as opportunity for, 27–28, 238n7 SFR, 57 shareholders business connection to, 68 calls for action for, 235 environmental and social issue importance to, 60–61, 241nn11–12 expectations for businesses, 4 positive environment creation for, 114–115 responsible investments of, 241n11 rewarding, 91–92 shareholder value, 6, 51, 54–62, 63–65, 74, 192 transparency with, 115–116 shareholder value Best Buy’s, 58–59, 61, 192 dangers of singular focus on, 57–59 employee engagement and, 61–62 healthy approach to, 62 maximization of, fallacy of business purpose as, 6, 51, 54–62, 63–65 as misleading measure of economic performance, 56–57 purposeful and human approach improving, 74 scandals due to excessive focus on, 59 stakeholders antagonized by singular focus on, 59–61 Sheth, Jag, 73 Shin, J.

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Classification: LCC HF5387 .J647 2021 (print) | LCC HF5387 (ebook) | DDC 658.4/092—dc23 LC record available at https://lccn.loc.gov/2020047842 LC ebook record available at https://lccn.loc.gov/2020047843 ISBN: 978-1-64782-038-1 eISBN: 978-1-64782-039-8 To Hortense CONTENTS Foreword Introduction Part One THE MEANING OF WORK 1. Adam’s Curse 2. Why We Work 3. The Problem with Perfection Part Two THE PURPOSEFUL HUMAN ORGANIZATION 4. The Tyranny of Shareholder Value 5. The Business of Building Cathedrals 6. Putting a Noble Purpose to Work 7. How to Turn around a Business without Everyone Hating You Part Three UNLEASHING HUMAN MAGIC 8. Moving Past Carrots and Sticks 9. First Ingredient: Connecting Dreams 10. Second Ingredient: Developing Human Connections 11.

pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

The result was a body of theory that argued that the only way for companies to be well run was if they maximized their ‘shareholder value'. In this way, investors would indirectly keep company managers accountable. In the decades that followed, an entire intellectual apparatus was created around ‘maximizing shareholder value', with new developments in law, economics and business studies. It became the dominant perspective of leading business schools and economic departments. The overriding goal of the corporation became that of maximizing shareholder value, as captured in the corporation's share price. However, far from being a lodestar for corporate management, maximizing shareholder value turned into a catalyst for a set of mutually reinforcing trends, which played up short-termism while downplaying the long-term view and a broader interpretation of whom the corporation should benefit.

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Finance: A Colossus is Born Banks and Financial Markets Become Allies The Banking Problem Deregulation and the Seeds of the Crash The Lords of (Money) Creation Finance and the ‘Real' Economy From Claims on Profit to Claims on Claims A Debt in the Family 5. The Rise of Casino Capitalism Prometheus (with a Pilot's Licence) Unbound New Actors in the Economy How Finance Extracts Value 6. Financialization of the Real Economy The Buy-back Blowback Maximizing Shareholder Value The Retreat of ‘Patient' Capital Short-Termism and Unproductive Investment Financialization and Inequality From Maximizing Shareholder Value to Stakeholder Value 7. Extracting Value through the Innovation Economy Stories about Value Creation Where Does Innovation Come From? Financing Innovation Patented Value Extraction Unproductive Entrepreneurship Pricing Pharmaceuticals Network Effects and First-mover Advantages Creating and Extracting Digital Value Sharing Risks and Rewards 8.

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The main way they do this is by using cash reserves to buy back shares from investors, arguing that this is to maximize shareholder ‘value' (the income earned by shareholders in the company, based on the valuation of the company's stock price). But it is no accident that among the primary beneficiaries of share buy-backs are managers with generous share option schemes as part of their remuneration packages - the same managers who implement the share buy-back programmes. In 2012, for example, Apple announced a share buy-back programme of up to a staggering $100 billion, partly to ward off ‘activist' shareholders demanding that the company return cash to them to ‘unlock shareholder value'.7 Rather than reinvest in the business, Apple preferred to transfer cash to shareholders.

pages: 315 words: 87,035

May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases—And What We Can Do About It
by Alex Edmans
Published 13 May 2024

Am I being nit-picky about getting the authors’ names the wrong way round? In fact, it’s a valuable red flag. It gives away how Denning and Sinek never bothered to open the paper; instead, they just pulled up Wikipedia. The Wiki entry for ‘shareholder value’ at the time read: ‘finance professors William Meckling and Michael C. Jensen . . . provided a quantitative economic rationale for maximizing shareholder value’ – almost exactly what Denning wrote. It seems Denning wanted to attack shareholder value, looked it up on Wikipedia, and copy-and-pasted the description of a study without reading it.§4 If he wished to indict the research for society’s ills, he needed to have scrutinized it carefully, yet he hadn’t even glanced at page one.

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Choosing your words (and data) carefully There’s a different shortcut if a statement is a direct quote – you can simply search for it without having to trudge through the whole report. Thousands of articles claim that former General Electric CEO Jack Welch declared that ‘Shareholder value is the dumbest idea in the world.’ Google quickly tells you it’s from a Financial Times interview, and a Ctrl-F on that interview reveals the full quote as ‘On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy’ – which has a quite different meaning. So while the reference wasn’t technically false, it’s still a lie because it’s selective and out of context.

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What if it’s not appropriate to provide evidence? Let’s assume Jack Welch’s statement ‘Shareholder value is the dumbest idea in the world’ was taken in context and not preceded by ‘on the face of it’. That’s a general opinion for which there’s no proof. Nor could Welch have pointed to evidence, because he made that statement in an interview, not a forty-page essay. The key is to remember that such claims are merely opinion. ‘In Jack Welch’s subjective opinion, shareholder value is the dumbest idea in the world’ is a more accurate portrayal than ‘As Jack Welch stated, shareholder value is the dumbest idea in the world.’ Welch’s subjective opinion may still be valuable, since he’s a highly experienced ex-CEO, but this ensures we’re mindful it’s not fact.

pages: 335 words: 104,850

Conscious Capitalism, With a New Preface by the Authors: Liberating the Heroic Spirit of Business
by John Mackey , Rajendra Sisodia and Bill George
Published 7 Jan 2014

This leads to innovation and superior customer service, which then leads to improved market share and higher revenues, profits, and eventually shareholder value. As he puts it, “This is a reinforcing, virtuous circle. If you turn it around and start with shareholder value, you can’t ‘get there from here.’ The clock only runs one way. If you start with the proposition that we have to satisfy the security analysts and hot-money shareholders, you will eventually destroy the enterprise. You will harm innovation and superior customer service, harm employee motivation, and ultimately destroy whatever shareholder value you have built up. That’s what happened at General Motors, The Home Depot, Sears, Kodak, Motorola, and a host of other formerly great companies.”1 Beyond Analytical Thinking One of the most challenging but important ideas about management and leadership involves understanding the relationships between stakeholders.

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These problems pale in comparison with the 2008 failure of major financial firms like Fannie Mae, Bear Stearns, Lehman Brothers, Countrywide, Citigroup, and scores of others, as overleveraged financial institutions collapsed while trying to maximize their shareholder value. In effect, Wall Street’s pressure on corporations to increase short-term stock prices boomeranged, knocking out many of those same financial firms. John Mackey, who calls Friedman “one of his heroes,” challenged the economist’s ideas in their 2005 debate, shortly before Friedman’s death. To his credit, Friedman tried to incorporate many of Mackey’s ideas into his theory of shareholder value creation, but Mackey pushed back: “While Friedman believes that taking care of customers, employees, and business philanthropy are means to the end of increasing investor profits, I take the exact opposite view: Making high profits is the means to the end of fulfilling Whole Foods’ core business mission.

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As environmental scientist Amory Lovins has said, “If something exists, it must be possible.”10 This misconception is based on the pervasive belief that big corporations are all dedicated to the sole purpose of maximizing profits and shareholder value and that the legal deck is stacked against anyone trying to change this. The consequences of this narrow view that many large publicly traded companies have of their responsibilities are reflected in the disturbing observation that only about 19 percent of Americans have confidence in big companies, while about 64 percent trust small businesses.11 Some people believe the only way to change this is to change the laws of incorporation so that public companies can escape from the legal fiduciary requirement to maximize profits and shareholder value.12 But this view reflects a mind-set that trade-offs between stakeholders are inevitable.

pages: 384 words: 103,658

Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism
by Jeff Gramm
Published 23 Feb 2016

But when you read Friedman’s piece today, there is something inevitable about his deconstruction of corporate purpose. In the pages of this book we’ll see how and why shareholders have won control of corporate America. Take it from Ralph Nader himself, who in 2014 released a public statement criticizing Liberty Media for “lowballing Sirius XM’s shareholder value” in a buyout offer.6 In today’s world, where even Ralph Nader’s activism promotes shareholder value, other public company stakeholders have been marginalized. When Bill Shlensky attacked the Chicago Cubs for refusing to light Wrigley Field, Phil Wrigley argued that night baseball would have a negative effect on the surrounding neighborhood.

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JUDGMENT OVER CHECKLISTS Many smart people have pondered corporate governance since Adolf Berle wrote in 1932 about the dangers of separating ownership and control. But it’s easy to get mired in theoretical details that don’t teach us how public companies actually work. In 2012, Cornell professor Lynn Stout wrote a thought-provoking book, The Shareholder Value Myth, which explains, “U.S. corporate law does not, and never has, required public corporations to ‘maximize shareholder value.’”3 She also argues that shareholders’ rights are so limited that they do not really constitute “ownership” of the company.4 But even if Stout is technically correct on both counts, can a board of directors in the real world promote a corporate purpose that subordinates voting shareholders’ interests to other pursuits?

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Carlo Cannell letter to BKF Capital board of directors, June 1, 2005 Chairman and CEO John A. Levin letter to BKF Capital shareholders, June 16, 2005 Some sharp, highly paid hedge fund managers target BKF Capital for overpaying its own stable of sharp hedge fund managers. The result is scorched earth and almost total destruction of shareholder value. TAKEN TOGETHER, THESE cases explain how shareholder activism works, while giving historical context to today’s hostilities. Several of these battles were high-profile archetypes of a shareholder movement, such as the hostile raiders or the Proxyteers. Other chapters focus on innovators like Benjamin Graham and Dan Loeb, who refined new techniques for engaging management teams.

pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

Shareholder capitalism promotes management over shareholders, management over the firm, and the firm over employees, families, and society. Dismayed by Milton Friedman’s harmful vision, criticism of shareholder capitalism has become sharp, exemplified by Cornell law professor Lynn A. Stout, author of The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public: “In the quest to ‘unlock shareholder value,’ they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance, and research and development; delay replacing outworn, outmoded, and unsafe equipment; shower CEOs with stock options and expensive pay packages to ‘incentivize’ them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency; and lobby regulators and Congress to change the law so they can chase short-term profits speculating in high-risk financial derivatives.”4 Little wonder American productivity growth is so weak.

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CHAPTER 3 1 As quoted by Ralph Atkins and Matt Steinglass, “Employment: A fix that functions,” Financial Times, August 3, 2011. 2 Jess Bailey, Joe Coward, and Matthew Whittaker, “Painful Separation: An international study of the weakening relationship between economic growth and the pay of ordinary workers,” Resolution Foundation, Commission on Living Standards, October 2011, 19. 3 Gideon Rachman, “The end of the Thatcher era,” Financial Times, April 27, 2009. 4 Lynn A. Stout, “The Shareholder Value Myth,” The Harvard Law School Forum on Corporate Governance and Financial Regulation (blog), June 26, 2012, http://blogs.law.harvard.edu/corpgov/2012/06/26/the-shareholder-value-myth/. 5 Jonsson, “America’s ‘other’ auto industry.” See also: “AP, “New contract with UAW only minimally increases GM fixed costs,” Washington Post, September 19, 2011. Additional news reports on auto industry wages can be found at: Editorial, “Saving Germany’s Auto Industry,” BusinessWeek International, November 1, 2004; Jonathan Cohn, “Debunking the Myth of the $70-per-hour Autoworker,” New Republic, November 21, 2008; and Daniel Schäfer, “Daimler pledges to preserve 37,000 jobs,” Financial Times, December 10, 2009. 6 Costs in Germany plants ranging from $55 to $60 per hour including benefits vary with exchange rates, but routinely exceed US wages by as much as $20 per hour.

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Stewart, “Rewarding CEOs Who Fail,” New York Times, Oct. 1, 2011. 34 Ian Verrender, “Corporate Ranks Start to Divide on Bonuses,” Sydney Morning Herald, Aug. 9, 2012. 35 John Gillespie and David Zweig, Money for Nothing, 35. 36 John Kay, “Powerful Interests Are Trying to Control the Market,” Financial Times, Nov. 10, 2009. 37 Richard Lambert, “Blueprint to Put Bosses’ Pay in Order,” Financial Times, Nov. 4, 2011. 38 Ian Verrender, “Running to Save Their Executive Bacon—Alas, It May Be Too Late,” Sydney Morning Herald, Oct. 15, 2011. 39 Gretchen Morgenson, “Enriching a Few at the Expense of the Many.” 40 Kate Burgess, “More Calls for Reform of Executives’ Pay,” Financial Times, Nov. 27, 2011. 41 Ian Verrender, “Running to Save Their Executive Bacon—Alas, It May Be Too Late.” 42 Ekkehard Wenger (University of Würzburg finance professor) and Leonhard Knoll, as quoted by James Wilson and Chris Hughes, “Pull Back from the US, Deutsche Urged,” Financial Times, April 8, 2008, http://www.ft.com/intl/cms/s/0/effdda98-0592-11dd-a9e0-0000779fd2ac.html#axzz24CFwaGsQ. 43 Robert Reich, Supercapitalism, 108. 44 Martin Wolf, “Why Today’s Hedge Fund Industry May Not Survive,” Financial Times, March 18, 2008. http://www.ft.com/intl/cms/s/0/c8941ad4-f503-11dc-a21b-000077b07658.html#axzz24CFwaGsQ. 45 “Shareholder Values,” Editorial, Financial Times, April 19, 2011. 46 Robert R.Trumble and Angela N. DeLowell, “Connecting CEO Performance to Corporate Performance: Examining Intangible Metrics of Shareholder Value,” Journal of Compensation and Benefits, November/December 2001. 47 Alex Edmans and Xavier Gabaix, “What’s Right, What’s Wrong and What’s Fixable,” Pathways, Stanford Center for Poverty and Inequality, Summer 2010. 48 Jessica Silver-Greenberg and Alexis Leonsis, “How Much Is a CEO Worth?

pages: 223 words: 10,010

The Cost of Inequality: Why Economic Equality Is Essential for Recovery
by Stewart Lansley
Published 19 Jan 2012

But via the deregulation of financial and labour markets from the end of the 1970s, the capitalist model evolved into a much more aggressive business model, a new, deregulated super-capitalism—all embracing, short-term and cutthroat—first taking hold in the Anglo-Saxon nations. The central driving force of this model was the chase for what came to be known as ‘shareholder value’—that companies should be run primarily or solely for the interests of their owners, subordinating all other goals. The pursuit of shareholder value meant maximising the short term rise in the share price, while linking executive rewards to shareholder interests. The concept was pioneered in the United States in the 1980s by companies like the giant General Electric, run by one of the most ruthless company bosses of the decade, Jack Welch.

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While this was deeply unpopular with staff and customers, its potential to cut costs and improve profit margins ‘went down a storm’ in the City.183 The other retail banks soon joined in the aggressive pursuit of shareholder value, shedding staff in an ongoing cost-cutting drive. The number of bank branches halved in the 20 years to 2009. The UK now has 197 bank and building society branches per million inhabitants compared with 500 in Germany and over 1000 in Spain.184 Rapid growth in the banking sector coincided with a shrinking of staff. In the five years to 2008, Abbey, Lloyds and RBS cut their staff levels by 39,000.185 Although shareholder value was initially shunned in those nations most wedded to a ‘social market’, notably Germany and Japan, a weaker version of the new supercapitalism spread, if gingerly, elsewhere.

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Businesses could never be ‘a positive force for good’, creating wealth and jobs, he declared, while short-term shareholder value is the main boardroom aim. A week later, Paul Polman, boss of Unilever, said that the company had already stopped offering guidance to the stock market on potential profits. ‘It is very easy for me to get tremendous results very short term, get that translated into compensation and be off sailing in the Bahamas’ he declared. ‘But the goal for this company—and it’s very difficult to do—the goal is to follow a four- or five-year process. We need to change the strategy and the structure as well as the culture.’ The research evidence is that the chase for shareholder value has left a trail of failures.

pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business
by Rana Foroohar
Published 16 May 2016

Seven years later, though, the group had finally caved, rewriting the statement to say that “the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.”43 Today, whether they believe it or not, it’s rare to find a CEO of a public company who doesn’t publicly buy into the idea of shareholder value. Indeed, the only leaders who can openly question this notion and get away with it tend to be high-profile founder-owners who have a certain cult of personality (Alibaba’s Jack Ma and Starbucks’s Howard Schultz are two who regularly accomplish that feat). Yet, sadly, if you sit in a Finance 101 class at any top business school today—Harvard, Wharton, Stanford, and the like—you’ll learn pretty much what you would have learned three or four decades ago: that shareholder value comes before anything else. You’ll also hear some of the core teachings in such classes, which are mandatory for MBA students: that people are guided by rational self-interest to make the best economic decisions; that the purpose of business is to make money and provide value to investors; and that a firm’s share price, rather than its underlying technologies, innovative capacity, human resources, or social benefit, is the measure of its success.

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The very type of short-term, risky thinking that nearly toppled the global economy in 2008 is today widening the gap between rich and poor, hampering economic progress, and threatening the future of the American Dream itself. The financialization of America includes everything from the growth in size and scope of finance and financial activity in our economy to the rise of debt-fueled speculation over productive lending, to the ascendancy of shareholder value as a model for corporate governance, to the proliferation of risky, selfish thinking in both our private and public sectors, to the increasing political power of financiers and the CEOs they enrich, to the way in which a “markets know best” ideology remains the status quo, even after it caused the worst financial crisis in seventy-five years.

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(The neuroscience of traders’ brains, which respond to deal making similarly to how addicts’ brains respond to cocaine, is in itself a fascinating area of scholarly inquiry.)70 Other academics, like University of Michigan scholar Gerald Davis, focus on the importance of new management theories such as our notion of shareholder value that puts the investor before everyone and everything else in society, including customers, employees, and the public good.71 The changes in the financial system have gone hand in hand with changes in business culture. Apple is hardly alone in its financial maneuvering. Companies as diverse as Sony, Intel, Kodak, Microsoft, General Electric, Cisco, AT&T, Pfizer, and Hewlett-Packard have been worked over by the ambassadors of finance, sacrificing their long-term interest for short-term gains.

pages: 504 words: 143,303

Why We Can't Afford the Rich
by Andrew Sayer
Published 6 Nov 2014

‘The dumbest idea in the world’ Pressure on BP management to cut costs in order to deliver shareholder value is alleged to have led BP to skimp on vital safety measures at the well that blew up in the Gulf of Mexico Deepwater Horizon oil spill. Saving $1 million a day on safety and research and development ended up costing the company’s shareholders $100 billion for the clean-up.32 Jack Welch, the former General Electric chief, who is thought to have coined the term ‘shareholder value’ in 1981, finally acknowledged the error of his ways in 2009, saying: ‘On the face of it, shareholder value is the dumbest idea in the world . . . Your main constituencies are your employees, your customers and your products.’33 Extraordinarily, in this new regime, it made sense for firms to avoid building up accessible cash reserves.

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CEO pay has not only rocketed but changed in composition, with stock options and retirement benefits accounting for an increasing proportion of pay, the former rising in US top companies from 8% of pay in 1990 to two-thirds in 2001.97 The official rationale for this was that it aligns CEOs’ interests with those of shareholders. In practice this encouraged them to engage in short-term manipulation of accounts to push up share prices, to allow executives to cash out (sell) at inflated prices.98 Comparing the US unfavourably to Germany, where shareholder value has had limited effect, William Tabb writes: ‘The use of stock options to encourage executives to maximize shareholder value weakened American capitalism to an incalculably dramatic extent.’99 CEOs need to be well networked in order to know what the best deals are and to convince ‘investors’ that their companies will be successful. But they also need their contacts and friends – usually executives from other companies – to serve on the remuneration committees that decide on their pay.

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He also included in his recommendation ‘the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital’. 95 Keynes, J.M. (1933) ‘National self-sufficiency’, The Yale Review, 22(4), pp 755–69. 96 Henwood, D. (1997) Wall Street, London: Verso, p 5. 97 Tawney, R.H. (2004) [1920] The acquisitive society, Mineola, NY: Harcourt Brace and Howe. 98 Adam Smith thought it was justifiable only in special cases. 99 Andrew Haldane at the Bank of England argues that in view of this, banks inevitably increased risks to maximise shareholder value: ‘For shareholders, the sky is the limit but the floor is always just beneath their feet. To maximise shareholder value, therefore, banks need simply to seek bigger and riskier bets.’ Haldane, A. (2012) ‘The doom loop’, London Review of Books, 34(4), 23 February, pp 21–2. 100 On this see Randy Martin’s excellent (2007) The financialisation of everyday life, Houndmills, Baskingstoke: Palgrave. 101 Personal share ownership in the UK has fallen proportionately in the last 50 years, from 54% of shares on the London Stock Exchange in 1963 to 10% in 2010 (BBC News, 27 January 2010, http://news.bbc.co.uk/1/hi/business/8482601.stm). 102 Department for Work and Pensions, Family Resources Survey, 2009–10, Table 6.7; and Froud, J., Johal, S., Haslam, C. and Williams, K. (2001) ‘Accumulation under conditions of inequality’, Review of International Political Economy, 8(1), pp 66–95. 103 Langley, P. (2007) ‘The uncertain subjects of Anglo-American financialization’, Cultural Critique 65, pp 66–91. 104 Engelen, E., Ertürk, I., Froud, J., Johal, S., Leaver, A., Moran, M., Nilsson, A. and Williams, K. (2011) After the great complacence: Financial crisis and the politics of reform, Oxford: Oxford University Press. 105 Froud et al (2001).

pages: 460 words: 131,579

Masters of Management: How the Business Gurus and Their Ideas Have Changed the World—for Better and for Worse
by Adrian Wooldridge
Published 29 Nov 2011

The Japanese opened the first front by inundating Western markets with better, cheaper, more reliable goods through “lean” production based on teamwork, which avoided both the alienation and the waste of Sloan’s system. Michael Milken, the junk bond king, and Michael Jensen, the leading theoretician of shareholder value, opened the second front, demonstrating that Sloanism had allowed many American firms to be hijacked by managers more interested in their pay and perks than in shareholder value. Steve Jobs and other Silicon Valley entrepreneurs opened the third front, demonstrating that you can succeed in business without growing a giant bureaucracy. The reengineers opened the final front, ripping apart all the old Sloanist functional departments such as “marketing,” “production,” and “research” and pushing workers into cross-functional teams, forcing them to use computers to bridge the gaps.

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The relative performance of America (with its cult of the shareholder) compared with continental Europe (with its emphasis on stakeholders) suggested that shareholder value provided the key to “creative destruction” and long-term economic growth. Even during the boom years, some important management theorists were skeptical. Charles Handy argued that “it is time we killed a myth that it is the shareholders who run the business, and that it is for them that we all work.”2 Peter Drucker complained that the fashionable talk of shareholder value encouraged the worst sort of short-termism: “Long-term results cannot be gained by piling short-term results on short-term results.”3 Robert Reich, the U.S.

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The more companies have to respond to a wide range of “stakeholders,” the more they need to abandon their obsession with a single measuring stick and to start using multiple measures. Is it really time to bury the shareholder-value model? It is certainly true that few people continue to support the crudest version of this model. There is a declining appetite for linking bosses’ pay to short-term fluctuations in their firms’ share price. There is even less appetite for loading companies with mountains of corporate debt that may end up crushing them rather than imposing the discipline that Michael Jensen so memorably celebrated. The critics were right to argue that focus on day-to-day shareholder value produces short-termism. Why not close down that plant or sell off that division if it meant a gigantic payday?

pages: 363 words: 109,834

The Crux
by Richard Rumelt
Published 27 Apr 2022

For companies that do not make these kinds of foolish choices, the 90-Day Derby still distracts management from more strategic concerns that actually affect the value of the company. SHAREHOLDER VALUE AND INCENTIVES The rise of shareholder value as the North Star of corporate purpose came of age in the 1980s. The idea that directors and managers should act to maximize shareholder value arose with special impetus from Harvard professor Michael Jensen’s agency theory of the firm. “Corporate managers are the agents of shareholders,” he wrote, and stressed that shareholders were often hurt by managers who refused to pay out cash to shareholders, instead investing in poor projects.5 Making shareholder value and return the North Stars of corporate purpose was an expression of economists’ newly formed agency theory.

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Frederick Kempe, “Davos Special Edition: China Seizing AI Lead?,” Atlantic Council, January 26, 2019, www.atlanticcouncil.org/content-series/inflection-points/davos-special-edition-china-seizing-ai-lead. 4. David Trainer, “Perverse Incentives Produce Deals That Shred Shareholder Value,” Forbes, May 2, 2016, www.forbes.com/sites/greatspeculations/2016/05/02/perverse-incentives-produce-deals-that-shred-shareholder-value. 5. F. Homberg, K. Rost, and M. Osterloh, “Do Synergies Exist in Related Acquisitions? A Meta-analysis of Acquisition Studies,” Review of Managerial Science 3, no. 2 (2009): 100. 6. Colin Camerer and Dan Lovallo, “Overconfidence and Excess Entry: An Experimental Approach,” American Economic Review 89, no. 1 (1999): 306–318. 7.

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See analysis and diagnosis of the challenge digital cameras, 178 digital technology Dropbox, 211–213 Zoom, 210–211 Dimon, Jamie, 260–261 Disney acquiring Marvel, 39 computer-based animation, 44–45, 50–51 Netflix and, 17, 19, 21–22, 25–27 disruption theory, 175–180 Dorst, Kees, 32 downstream operations, 187, 193–194 driving results, 250 drones, 255 Dropbox, 211–213 drought, 277–278 Drucker, Peter, 218, 251 Dvorak, John, 148 dysfunction, organizational, 117 General Motors, 218–221 IBM’s organizational renewal, 227–231 ignoring adopted policies, 326–327 Nokia, 222–225 organizational inertia and size, 221–222 transformation and renewal, 225–229 earnings estimates, 257–262 EBITDA, 93, 99, 289 Eckert, Robert, 282 ecological concerns: fabric manufacture, 204–205 economic challenges: Singapore and China, 43–44 ecosystem collapse, 180 education Encyclopedia Britannica, 178 McGraw-Hill Publishing, 92–93 efficiency: motivating and measuring performance, 250 Eggers, Jeffrey, 133–134 Eisenhower, Dwight D., 130, 132 Eisner, Michael, 44–45 electricity GM’s electric vehicles, 221 harnessing, 205 television, 215–216 The Elements (Euclid), 34–35 Ellison, Larry, 57 Encyclopedia Britannica, 178 engineering climate-control systems, 288–289 design versus deduction, 36 finding the crux of Intel’s challenges, 80 forms of strategic challenge, 24 Nvidia’s architectures, 190 safety equipment for firefighters, 122 space shuttle, 4–7, 125–128 Etsy, 200–201 Euclid, 34–35 execution, 250 executive compensation misrepresenting data, 172–173 through mergers and acquisitions, 99, 102, 290 experience, 195–198 ExxonMobil: linking shareholder value to performance, 266 Facebook, 214, 280 Farnsworth, Philo, 215 Farrell, Dawn, 296–297 fax machines, 207 Ferguson, Charles, 99–100 fiber-optic cable development, 207 file synchronization, 212–213 film industry. See Disney; Netflix filtering, 40–41 financial crisis (2008–2009), 87–88, 92, 267–268 financial results aligning CEO and investor incentives, 265–271 Netflix, 18(fig.) quarterly earnings estimates, 257–258 shareholder value and incentive pay, 262–265 firefighters, safety equipment for, 122 flexibility, organizational, 84–85, 180 focusing on a problem breaking through the crux, 5 diffusing effort, 114 finding the ASCs, 323–324 focusing in and focusing out, 49 focusing on a few proximate objectives, 324 as strategic skill, 4 Strategy Foundry, 308–310 See also coherent action Fontainebleau, France, 1–4, 27, 218–221 food production, 163–164, 245–247 food-processing industry, 87–91 forced inward analysis, 320–321 Ford Motor Company, 96, 193–196 frame-risk, evaluating, 322–323 Freund, John, 208–209 Fried, Jason, 44 Galbraith, Simon, 31 Gates, Bill, 73, 149, 198–199, 228 General Dynamics, 320 General Electric (GE), 22, 96, 141, 156, 174–175 General Motors (GM), 218–221, 237 geolocation, 116–118, 146 Gerstner, Lou, 79–80, 156, 228–231 gnarly challenges characteristics of, 37–39 COVID-19 and Ryanair, 61–62 creating a coherent strategic response, 31–32 designing action alternatives, 42–45 forms of strategic challenge, 23–24 goals versus strategies, 241–242 identifying the crux, 27, 39–42 the mechanics of insight, 47 goals, strategic ambitions versus, 20–21 arbitrary unsupported goals, 242–244 Curtiss-Wright’s diversification, 235–240 deduction versus design, 34–37 driving results, 249–250 elements of good goals, 237–240 misapplied goals, 245–247 versus strategy, 241–242, 248–249 strategy statements, 111–114 unsupported goals and objectives, 235 Good Strategy/Bad Strategy (Rumelt), 95, 189, 298 Google AdWords, 53 Google Maps, 117 growth through strategic extension, 89 impact on tech consumption, 214 mergers and acquisitions, 100–101 Pixel 2 and Pixel Buds, 270–271 robotic surgery, 209 GoTo, 52–53 Gross, Bill, 52–53 group performance, 296 groupthink, 290–292, 315–316 growth arbitrary unsupported goals, 242–244 avoiding accounting manipulations, 105–106 avoiding overpayment, 101–104 BCG growth-share matrix, 173–174 concerns over Nokia’s rapid growth, 223 delivering exceptional value to an expanding market, 87–91 diagnosing the challenge, 84–85 growing the blob, 104–105 lack of earnings, 106–108 the meaning and mechanics, 85–87 Netflix’s accounting system, 17–19 quick reaction times, 94–97 simplification of business, 91–94 “strategy calculator,” 15–17 using mergers and acquisitions, 97–101 Guthart, Gary, 208–209 Hamel, Gary, 16–17 Hammonds, Keith, 263 Hastings, Reed, 17–19, 22 Hawkins, David, 265 health care: pandemic planning, 272–273 Henderson, Bruce, 197 high-speed computing, 188 history, lessons from, 317 Houston, Drew, 211–212 Huang, Jen-Hsun, 190 IBM, 149, 156, 193, 227–231, 242 identifying the crux, 11 the clash of ambition, 70–73 effective action, 8–9 facing the challenge of, 142–144 gnarly challenges, 27 GoTo and AdWords, 52–53 industrial design, 32 Intel, 80–83 isolating the crux, 38 Marvel comics, 39 the mechanics of insight, 47 Netflix challenges, 25–27 Strategy Foundry system, 303–310 importance, critical addressable strategic challenge, 73–75 filtering challenges, 41 finding the crux of Intel’s challenges, 80–82 incentive pay, 262–265 industrial organization (IO): industry-analysis framework, 167 industry-analysis framework, 167 inertia, organizational, 221–225 influencers, 207–208 infrastructure: planning store sizes, 161–162 innovation building on existing infrastructure, 203–204 complementarities, 214–216 long waves, 204–206 short waves, 207–214 tech giants, 213–214 INSEAD school of management, 76, 218–221 inside-view bias, 296 insight, 8–9 assessing growth, 85 creating a coherent action, 125 debate over judgment leading to, 75 impediments to, 50–51 the mechanics of, 45–49 responses using the Boyd Loop, 95–96 Instant Strategy exercise, 68–70, 320 integration and deintegration, 193–194 integrity and honesty: the quality of strategy work, 171–172 Intel, 55, 76–83, 95, 189 international markets, Netflix challenges in, 25–27 Internet: confluence of existing products and activities, 205–206 Internet-of-Things (IoT), 78 Intuit, 191 Intuitive Surgical, 208–209 iPhone disruption by, 176–177 Jobs embracing the challenge, 144–147 mobile phone development, 78 Nokia’s touch-screen phones, 224 opening the app store to outsiders, 42 as product of close coupling, 188 role of analogy in the success of, 147–148 scaling mobile phone production, 195 Windows phone and, 73 Iraq, War in, 292–294 Janis, Irving, 290–291, 315–316 Jobs, Steve, 31, 144–147, 269–271 Johnson, Lyndon, 71–73 judgment as a skill, 4, 74–75, 315–316 Kahn, Herman, 205–206 Kanter, Rosabeth Moss, 250 Keller, Maryann, 219 Kennedy, John F., 291 Klein, Gary, 318–319 Kodak, the decline of, 178, 180 Korean War, 94–95 Le Toit du Cul de Chien (The Roof of the Dog’s Ass) boulder problem, 1–5, 27 leadership changing the alpha to create cultural change, 230 Nokia’s organizational inertia, 225 organization dysfunction at GM, 219 organization transformation, 226 owning the challenge, 289–290 strategy as an exercise of power, 110–111 Learson, T.

pages: 287 words: 44,739

Guide to business modelling
by John Tennent , Graham Friend and Economist Group
Published 15 Dec 2005

In many companies an overall success factor is applied to all projects, whether they are for business reorganisation, asset purchase, budgeting or strategic planning – the enhancement of shareholder value. A model can then be used to quantify the change in shareholder value that is created by alternative scenarios. SHAREHOLDER VALUE The objective for most organisations is to deliver a growing return to shareholders (the owners in the case of an unincorporated business or partnership). This is achieved by generating growing profits and realising them in cash. The cash can then be used for reinvestment in the business, repayment of funding or distribution to shareholders. 194 16. ANALYTICAL RATIOS AND REVIEWING THE FINANCIAL STATEMENT Chart 16.1 Shareholder value framework Shares Loans INVESTORS Sales CASH Dividend Interest THE BUSINESS Assets Costs TAX One common method of quantifying shareholder value is to calculate the net present value (npv) of the future cash flows generated by a project (see Chapter 15 for the principles of discounted cash flow).

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ANALYTICAL RATIOS AND REVIEWING THE FINANCIAL STATEMENT Chart 16.1 Shareholder value framework Shares Loans INVESTORS Sales CASH Dividend Interest THE BUSINESS Assets Costs TAX One common method of quantifying shareholder value is to calculate the net present value (npv) of the future cash flows generated by a project (see Chapter 15 for the principles of discounted cash flow). The result gives a single number that represents the current value of the future cash flows. This shareholder value number may be helpful in overall terms, but it can be difficult to use when analysing the detailed elements of a project. What is needed is a set of indicators that, while being congruent with the principle of shareholder value, provides information about a range of project attributes.

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This structure can be predicted by looking at the capital structure of other similar businesses in the industry. 182 15. PROJECT APPRAISAL AND COMPANY VALUATION Discounted cash flow decision rule The decision rule based on dcf analysis is straightforward. If the net cash flow or npv is positive, the project will increase shareholder value and should be undertaken. If the net cash flow or npv is negative, the project will decrease shareholder value and should only be undertaken if there are other compelling strategic benefits for doing so, otherwise it should be rejected. DISCOUNTING CASH FLOWS IN PRACTICE If $100 is deposited in an account that pays interest annually at 10% gross, the balance on that account would grow as follows: Now $100 1 year → $110 2 years $121 → 3 years $133.1 → This is the principle of compound interest.

pages: 290 words: 83,248

The Greed Merchants: How the Investment Banks Exploited the System
by Philip Augar
Published 20 Apr 2005

Many industries – airlines, trucking, utilities, energy, banking, telecommunications in the Telecommunications Act of 1996 – were transformed as governments stood back and exposed them to market forces.13 In parallel, following the work of Professor Alfred Rappaport at the North Western University Business School, creating ‘shareholder value’ was elevated above other goals for management. The movement was given added bite by the increasing use of share options to incentivize top executives and they turned to the investment banks to help them grow earnings per share through financial engineering and mergers and acquisitions.14 The combination of a strong economy, deregulation and shareholder value created a mountain of corporate finance work for the investment banks as companies merged, demerged and refinanced themselves.

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The amount of money invested in 401K plans quadrupled to nearly $400 billion in the 1980s and then quintupled in the 1990s to almost $2 trillion, helping to drive up share prices through sheer weight of money, giving millions of people an interest in the stock market and providing business with a new pool of capital to tap.15 By the middle of the 1980s Wall Street was at the centre of the economic action, serving, on the one hand, the needs of investors with capital to invest and, on the other, companies hell-bent on a dash for shareholder value. As the bull market built in the early 1980s, people on Wall Street began to make serious money. Big deals generated big bonuses. Wall Street became ‘Disneyland for adults’, in the words of one corporate finance executive eagerly anticipating a $9 million bonus in 1986. But Wall Street’s newfound fame turned sour for a few years in the late 1980s and early 1990s.

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During the last quarter of a century, America and Britain have achieved near-perfect economic conditions: reassuringly steady growth, productivity gains, rising employment, low interest rates and – at least for the foreseeable future – the elimination of inflation as a threat. Potential pitfalls have been avoided: deflation has not materialized, recessions have been minimized and economies have not generally overheated. The effect of free market economics and the allied movements of globalization and shareholder value have been widely praised: in ‘the period since 1980 – the age vilified for its rush into globalization – both global inequality and the proportion of the world’s population and number of the world’s people in extreme poverty have fallen.’1 Former US Treasury Secretary Lawrence Summers had no doubt who was responsible: ‘It was impatient, value-focused shareholders who did America a great favour by forcing capital out of its traditional companies and thereby making it available to fund the venture capitalists and the Ciscos and the Microsofts that are now in a position to propel our economy very rapidly forward.’2 The growth, liquidity and ability of capital markets to withstand all kinds of shock were crucial as America led the world’s stock markets to a tenfold increase in capitalization in just two decades.

pages: 554 words: 158,687

Profiting Without Producing: How Finance Exploits Us All
by Costas Lapavitsas
Published 14 Aug 2013

Ian Clark has developed the argument further by stressing the advantages of financialization for private equity holders.67 These arguments have drawn on the voluminous literature on ‘shareholder value’ and corporate governance, which has been a permanent subtext in the financialization debates, as is clear from the survey above. The issue of corporate governance and control is of long standing in economic theory, and will be considered in chapters 6 and 7 in connection with capital markets, shareholding and income distribution. Influential in the financialization literature has been the work of William Lazonick and Mary O’Sullivan arguing that the ideology of ‘shareholder value’ has led to company ‘downsizing’ and thus to problematic investment outcomes among US corporations.

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An important contribution in this field has been made by Masahiko Aoki who has stressed the nature of information flows in horizontally structured Japanese enterprises compared to vertically structured US enterprises, further associating the differences with the frequently superior performance of Japanese enterprises.69 Suffice it to note, at this point, that the institutional and organizational structure of capitalist enterprises, important as it is for explaining performance, is not an appropriate criterion for defining financialization. Shareholder value might contribute to explaining differences in behaviour among US and Japanese enterprises, but financialization has to do with systematic access to funds and acquisition of financial assets, both of which are more fundamental processes than shareholder value. From this perspective, and as is shown in subsequent chapters, Japanese enterprises are also financializing, even if differently from US enterprises. An approach that draws on classical Marxism The approach to financialization in this book draws heavily on the theories reviewed in the previous sections, but its analytical backbone derives from work on Marxist theory of finance that has been developed since the early 1980s.70 It also draws on the characteristic features of the crisis of 2007, a systemic upheaval that has cast light on the path of social and economic development of contemporary capitalism.71 The crisis is a product of financialized capitalism, the culmination of contradictory tendencies that have unfolded for more than three decades, as is shown in Chapter 9.

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It appears that Kuznets’s law has been reversed in the course of financialization, as neoliberalism has dominated the ideological sphere: a U-shaped path for inequality has emerged in the course of the twentieth century.24 The rise in personal income inequality has been related to the financial practices of large non-financial enterprises, particularly their increased involvement in open financial markets and accretion of financial skills. The ideology for such practices has been provided by ‘shareholder value’, briefly discussed in chapters 2 and 6. The impact of shareholder value on income distribution appears to have been substantial, bearing in mind the characteristic tendency of managers to be remunerated through financial means. Stock options tend to acquire a higher value when share prices rise, thus encouraging managers to deliver short-term boosts to share prices.

pages: 414 words: 108,413

King Icahn: The Biography of a Renegade Capitalist
by Mark Stevens
Published 31 May 1993

What’s more, as the corporate giants had grown ever larger, and further removed from their shareholders, the CEOs began to regard themselves as the “owners” of their companies, placing their interests (power, position, and money) before those of the stockholders (who sought maximum return on their investments). Because corporate management was inclined to repel takeover attempts regardless of the positive impact they might have on shareholder values, Icahn was betting that the barons of the executive suites would prove to be his reluctant allies. Threaten their privileged lifestyles and they would use the shareholders’ money to buy him off, either by paying greenmail (which is a premium for a raider’s shares over the current market value) or by finding white knights to acquire their companies by making above-market price bids for the outstanding stock.

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For years, proxy battles had been waged by corporate gadflies and assorted power brokers seeking to enlist the support of shareholders to oust incumbent management and replace them in the executive suite. These battles resembled political contests, with both sides claiming they were better suited to run the companies profitably, and in turn to meet the universal litmus test of increasing shareholder value. Icahn recognized that while a proxy contest could be used to gain control of a company (and ultimately to build it into a more profitable enterprise), much faster profits could be earned by simply appearing to seek control. By acquiring big stakes in companies whose asset values substantially exceeded their share prices and then launching proxy battles, Icahn would be calling attention to the gap between market and inherent values.

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Ever since Icahn began to reach out to control corporate destinies, he pictured himself a positive force shaking up an entrenched and close-minded management. The Tappan company’s knee-jerk rejection of his bid to join the board gave credence to this. Why not add a smart, savvy financial man to the ranks of the company’s directors? With Icahn’s knowledge of Wall Street and his ability to serve as a catalyst for raising shareholder value, wouldn’t his counsel benefit Tappan? Instead, management viewed him as a threat. In boosting the company’s performance for its shareholders, Icahn might well tamper with the status quo, perhaps arranging a merger or buyout that, for one reason or another, failed to win management’s support.

pages: 827 words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite
by Duff McDonald
Published 24 Apr 2017

Rockefeller—said the following: “The job of management is to maintain an equitable and working balance among the claims of the various directly affected interest groups . . . stockholder, employees, customers, and the public at large.”17 During the Michael Jensen era, everyone forgot about that. But then we sort of remembered it again. Even shareholder-friendly Jack Welch, the longtime CEO of General Electric, eventually came around. In March 2009, he told the Financial Times, “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy . . . your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. . . . Short-term profits should be allied with an increase in the long-term value of a company.”18 Maybe, just maybe, we’re not all whores.

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In Taylorism, one could argue, lie the seeds of American industry’s eventual comeuppance at the hands of the Germans and the Japanese—that is, the sacrifice of quality at the altar of quantity. Not only that, but by focusing managers exclusively on the goal of efficiency, he was implicitly sanctioning the idea that a company can be judged by a single metric. Today’s even more pernicious version of such: shareholder value. Writes Stewart: “The modern-day CEOs who sacrifice the long-term viability of their corporations for the sake of short-term boosts in their quarterly earnings reports are direct descendants of the pig-iron managers who undermined their work team’s morale in order to achieve temporary productivity targets.”10 Another: He encouraged a dogma of “hardness.”

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In Friedman’s view, “hypocrisy is virtuous when it serves the bottom line,” Bakan observed, “[whereas] moral virtue is immoral when it does not.”3 Bakan then found a professor at HBS who was willing to channel Friedman’s “brand of cynicism [that is] old-fashioned, mean-spirited, and out of touch with reality.” According to then–HBS professor Debora Spar, corporations “are not institutions set up to be moral entities . . . they are institutions which really only have one mission, and that is to increase shareholder value.”4 Says who? Milton Friedman, obviously. But who else? Just a small sample of people who’ve actually “set up” corporations would seem to suggest that such a blanket statement is entirely without merit. Yves Chouinard, the CEO of Patagonia, certainly had a larger mission in mind. John Mackey, who cofounded Whole Foods, wouldn’t agree with that premise.

pages: 370 words: 102,823

Rethinking Capitalism: Economics and Policy for Sustainable and Inclusive Growth
by Michael Jacobs and Mariana Mazzucato
Published 31 Jul 2016

As evolutionary economics has emphasised, this heterogeneity is not a short-run transition towards a world of similar actors, but a long-run feature of the system.41 Different norms and routines combine to generate different behaviours and outcomes. In fact, the evidence shows the particular importance of ownership and governance structures. Over the past thirty years the orthodox view that the maximisation of shareholder value would lead to the strongest economic performance has come to dominate business theory and practice, in the US and UK in particular.42 But for most of capitalism’s history, and in many other countries, firms have not been organised primarily as vehicles for the short-term profit maximisation of footloose shareholders and the remuneration of their senior executives.

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Companies in Germany, Scandinavia and Japan, for example, are structured both in company law and corporate culture as institutions accountable to a wider set of stakeholders, including their employees, with long-term production and profitability their primary mission. They are equally capitalist, but their behaviour is different. Firms with this kind of model typically invest more in innovation than their counterparts focused on short-term shareholder value maximisation; their executives are paid smaller multiples of their average employees’ salaries; they tend to retain for investment a greater share of earnings relative to the payment of dividends; and their shares are held on average for longer by their owners. And the evidence suggests that while their short-term profitability may (in some cases) be lower, over the long term they tend to generate stronger growth.43 For public policy, this makes attention to corporate ownership, governance and managerial incentive structures a crucial field for the improvement of economic performance.

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Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, Boston, MA, Beacon Press, 2001 [1944]. 40 As Polanyi put it: ‘The road to free markets was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism … Administrators had to be constantly on the watch to ensure the free working of the system.’ Ibid, p. 144. 41 R. R. Nelson and S. G. Winter, An Evolutionary Theory of Economic Change, Cambridge, MA, Harvard University Press, 2009. 42 W. Lazonick and M. O’Sullivan, ‘Maximizing shareholder value: a new ideology for corporate governance’, Economy and Society, vol. 29, no. 1, 2000, pp. 13–35. 43 W. Hutton, How Good We Can Be: Ending the Mercenary Society and Building a Great Country, London, Abacus, 2015. 44 Lawrence Summers, October 1991, when Chief Economist at the World Bank; cited by M.

pages: 232 words: 71,024

The Decline and Fall of IBM: End of an American Icon?
by Robert X. Cringely
Published 1 Jun 2014

Maximizing shareholder return is bad policy both for public companies and for our society in general. That’s what Jack Welch told the Financial Times in 2009, once Welch was safely out of the day-to-day earnings grind at General Electric: "On the face of it,” said Welch, “shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers, and your products. Managers and investors should not set share-price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company."

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Matt / April 19, 2012 / 11:22 am Customer systems info has no shareholder value I’ve worked in IBM Services for years and the real sad part is that if you passed this list of customer system questions/requirements to a Sales Rep or an Account lead, they would struggle with the meaning of many of the terms. To actually gather the information would require a small act of Congress, not to mention a multiple-group fire drill. Eventually a report could be produced but it surely wouldn’t be in one day and it most likely wouldn’t be accurate. And all of this is because IBM management wouldn’t view this as an exercise, which provides shareholder value. End of story.

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Dumping the CEC consolidated power in the office of the CEO once Gerstner’s token year as chairman was over, Palmisano was then president, CEO, and chairman, and had unfettered control of IBM with essentially no checks and balances in place. It was an opportunity for bold action, indeed a chance to transcend even Gerstner. Further, it would represent the final victory of sales over the rest of IBM. Now—what to do with all that power? Palmisano found his windfall in the simple expedient of “maximizing shareholder value.” Lawyers arguing in court present legal theories—their ideas of how the world and the law intersect, and why this should mean their client is right and the other side is wrong. Proof of one legal theory over another comes in the form of a verdict or court decision. As a culture we have many theories about institutions and behaviors that aren’t so clear-cut in their validity tests (no courtroom, no jury) yet we cling to these theories to feel better about the ways we have chosen to live our lives.

pages: 365 words: 88,125

23 Things They Don't Tell You About Capitalism
by Ha-Joon Chang
Published 1 Jan 2010

In order to encourage managers to behave in this way, the proportion of their compensation packages that stock options account for needs to be increased, so that they identify more with the interests of the shareholders. The idea was advocated not just by shareholders, but also by many professional managers, most famously by Jack Welch, the long-time chairman of General Electric (GE), who is often credited with coining the term ‘shareholder value’ in a speech in 1981. Soon after Welch’s speech, shareholder value maximization became the zeitgeist of the American corporate world. In the beginning, it seemed to work really well for both the managers and the shareholders. The share of profits in national income, which had shown a downward trend since the 1960s, sharply rose in the mid 1980s and has shown an upward trend since then.3 And the shareholders got a higher share of that profit as dividends, while seeing the value of their shares rise.

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So running companies in the interest of the shareholders does not even benefit the economy in the average sense (that is, ignoring the upward income redistribution). This is not all. The worst thing about shareholder value maximization is that it does not even do the company itself much good. The easiest way for a company to maximize profit is to reduce expenditure, as increasing revenues is more difficult – by cutting the wage bill through job cuts and by reducing capital expenditure by minimizing investment. Generating higher profit, however, is only the beginning of shareholder value maximization. The maximum proportion of the profit thus generated needs to be given to the shareholders in the form of higher dividends.

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Just think about the way in which General Motors has squandered its absolute dominance of the world car industry and finally gone bankrupt while being on the forefront of shareholder value maximization by constantly downsizing and refraining from investment (see Thing 18). The weakness of GM management’s short-term-oriented strategy has been apparent at least from the late 1980s, but the strategy continued until its bankruptcy in 2009, because it made both the managers and the shareholders happy even while debilitating the company. Running companies in the interests of floating shareholders is not only inequitable but also inefficient, not just for the national economy but also for the company itself. As Jack Welch recently confessed, shareholder value is probably the ‘dumbest idea in the world’.

pages: 892 words: 91,000

Valuation: Measuring and Managing the Value of Companies
by Tim Koller , McKinsey , Company Inc. , Marc Goedhart , David Wessels , Barbara Schwimmer and Franziska Manoury
Published 16 Aug 2015

Indeed, a system focused on creating shareholder value isn’t the problem; short-termism is. Banks that confused the two at the end of the last decade precipitated a financial crisis that ultimately destroyed billions of dollars of shareholder value, as did Enron and WorldCom at the turn of this century. Companies whose short-term focus leads to environmental disasters also destroy shareholder value, not just directly through cleanup costs and fines, but via lingering reputational damage. The best managers don’t skimp on safety, don’t make value-destroying decisions just because their peers are doing so, and don’t use accounting or financial gimmicks to boost shortterm profits, because ultimately such moves undermine intrinsic value that is important to shareholders and stakeholders alike.

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The best managers don’t skimp on safety, don’t make value-destroying decisions just because their peers are doing so, and don’t use accounting or financial gimmicks to boost shortterm profits, because ultimately such moves undermine intrinsic value that is important to shareholders and stakeholders alike. WHAT DOES IT MEAN TO CREATE SHAREHOLDER VALUE? At this time of reflection on the virtues and vices of capitalism, we believe that it’s critical that managers and boards of directors have a new, precise definition of shareholder value creation to guide them, rather than having their focus blurred by a vague stakeholder agenda. For today’s value-minded executives, creating shareholder value cannot be limited to simply maximizing today’s share price for today’s shareholders. Rather, the evidence points to a better objective: maximizing a company’s collective value to current and future shareholders, not just today’s.

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But we believe the current debate has muddied a fundamental truth: creating shareholder value is not the same as maximizing short-term 1 Alfred Marshall, Principles of Economics (New York: Macmillan, 1890), 1:142. An annual Gallup poll in the United States showed that the percentage of respondents with little or no confidence in big business increased from 27 percent in the 1983–1986 period to 38 percent in the 2011–2014 period. For more, see Gallup, “Confidence in Institutions,” www.gallup.com. 2 3 4 WHY VALUE VALUE? profits. Companies that confuse the two often put both shareholder value and stakeholder interests at risk. Indeed, a system focused on creating shareholder value isn’t the problem; short-termism is.

The End of Accounting and the Path Forward for Investors and Managers (Wiley Finance)
by Feng Gu
Published 26 Jun 2016

Thus, for example, the frequency of releasing proforma (non-GAAP) earnings doubled from 2003 to 2013, standing now at over 40 percent.12 Researchers, too, sense a serious problem: A recent study by leading accounting researchers examined the impact on investors of all the accounting and reporting rules and standards issued by the Financial Accounting Standards Board (FASB) from its inception (1973) through 2009—a staggering number of 147 standards—and found that 75 percent of these complex and costly rules didn’t have any effect on the shareholders of the impacted companies (improved information generally enhances shareholder value), and, hard to believe, 13 percent of the standards actually detracted from shareholder value. Only 12 percent of the standards benefited investors. Thus, 35 years of accounting regulation came to naught.13 The SEC is concerned, too: Consider, for example, the current initiative of the US Securities and Exchange Commission (SEC)—Disclosure Effectiveness—aimed at “ . . . considering ways to improve the disclosure regime for the benefit of both companies and investors.”14 The SEC invited input and comments to this initiative, and indeed, a Google search reveals scores of mostly extensive comments and submissions by business institutions, accounting firms, and individuals.

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But doubts regarding the quality of Chinese patents linger, see “Patent Fiction,” The Economist (December 13, 2014). 6. Financial Accounting Standards Board, ASC 730 (1974). This standard, mandating the immediate expensing of R&D, ranks high among the FASB standards that decreased shareholder value. See Urooj Khan, Bin Li, Shivaram Rajgopal, and Mohan Venkatachalam, Do the FASB’s Standards Add Shareholder Value? working paper (Columbia Business School, 2014). 7. The accounting distinction between assets (capital) and expenses is clear: Assets, like plant or securities, provide future benefits, whereas expenses, like salaries or rent, are payments for past services without future benefits.

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See Jeremiah Bentley, Theodore Christensen, Kurt Gee, and Benjamine Whipple, Who Makes the non-GAAP Kool-Aid? How Do Managers and Analysts Influence non-GAAP Reporting Policy? working paper (Salt Lake City: Marriott School of Management, Brigham Young University, 2014). 13. Urooj Khan, Bin Li, Shivaram Rajgopal, and Mohan Venkatachalam, Do the FASB Standards Add (Shareholder) Value? working paper (New York: Columbia University Business School, 2015). 14. US Securities and Exchange Commission, Disclosure Effectiveness, 2015. 15. Here and there, we found exceptions. For example, the accounting firm Ernst & Young proposes a report on critical estimates underlying financial information and their realizations.

pages: 330 words: 59,335

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
by William Thorndike
Published 14 Sep 2012

And yet virtually all of these CEOs shrank their share bases significantly through repurchases. Most also shrank their operations through asset sales or spin-offs, and they were not shy about selling (or closing) underperforming divisions. Growth, it turns out, often doesn’t correlate with maximizing shareholder value. This pragmatic focus on cash and an accompanying spirit of proud iconoclasm (with just a hint of asperity) was exemplified by Henry Singleton, in a rare 1979 interview with Forbes magazine: “After we acquired a number of businesses, we reflected on business. Our conclusion was that the key was cash flow. . . .

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A proxy for these returns can be seen in figure 2-1, which shows the approximately eightfold growth in book value at Teledyne’s insurance subsidiaries from 1975 through 1985, when Singleton began the process of dismantling his company. During the period from 1984 to 1996, Singleton shifted his focus from portfolio management to management succession (in 1986, he tapped Roberts to succeed him as CEO, retaining the chairman’s title) and to optimizing shareholder value in the face of stagnating results at Teledyne’s operating divisions. To accomplish these objectives, Singleton resorted to new tactics, again confounding Wall Street. FIGURE 2-1 Teledyne insurance book value ($ in millions)a a. Shows sum of book equity values for Unitrin and Argonaut subsidiaries.

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Both Singleton and Buffett had significant ownership stakes in their companies (13 percent for Singleton and 30-plus percent for Buffet). They thought like owners because they were owners. • Insurance subsidiaries. Both Singleton and Buffett recognized the potential to invest insurance company “float” to create shareholder value, and for both companies, insurance was the largest and most important business. • The restaurant analogy. Phil Fisher, a famous investor, once compared companies to restaurants—over time through a combination of policies and decisions (analogous to cuisine, prices, and ambiance), they self-select for a certain clientele.

pages: 237 words: 72,716

The Inequality Puzzle: European and US Leaders Discuss Rising Income Inequality
by Roland Berger , David Grusky , Tobias Raffel , Geoffrey Samuels and Chris Wimer
Published 29 Oct 2010

It has long been the case in Germany that you didn’t just get your bonuses linked to shareholder value, you get it from market share, which was something real and could be measured – the social market concept that you have to show organic growth, not just financial 76 J. Monks chicanery. I wouldn’t say that Germany is a model of corporate governance, it isn’t, but I do think that is the direction I would like to see people going, trying to structure business rewards so they are not just linked to short-term shareholder value, mergers and acquisition deals, many of which go wrong. The majority of which go wrong and you have no shareholder value at all. I think that’s probably where the heart of it is, but I wouldn’t say we’re totally confident we would stop it by those things.

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I was very surprised. We were in the middle of the excitement about shareholder value, financial motivations, etc., and they were writing things like that people were working not for money only, that things were not as simple, that people are not unidimensional. All the good old things that we’ve known for a long time, but that were getting forgotten. So I was happy to write the foreword to that book. There was such a discrepancy between what they were saying about the way a company works, and the image of a company devoted purely to building shareholder value, and making sure everybody was in line through appropriate monetary, financial incentives.

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There was such a discrepancy between what they were saying about the way a company works, and the image of a company devoted purely to building shareholder value, and making sure everybody was in line through appropriate monetary, financial incentives. It was striking. But to answer your question more appropriately, some theoretical economists were not happy about that complexity of management motives. They wanted management to be concerned only about shareholder value, and they advocated the systems of financial incentives, which developed so well that they created the current situation. Gabriele Galateri di Genola Chairman, Telecom Italia “The world has survived ages of tragedies and disasters and of confidence and development, because every action produces a reaction that tends to stabilize or recreate equilibrium.

pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People?
by John Kay
Published 2 Sep 2015

Companies were encouraged to pursue ‘shareholder value’.31 Many chief executives came to see themselves as meta-fund managers, buying and selling a portfolio of companies rather as asset traders might buy and sell portfolios of securities. Jack Welch became CEO of America’s largest industrial company, General Electric, in 1981. In a speech he gave that year at New York’s Pierre Hotel he announced that the corporation would sell or close any business in which it was not number one or number two. This occasion is widely described as the beginning of the application of shareholder value principles in American business: and as he implemented this strategy over the following two decades, Welch became America’s most admired business leader.32 In 1965 an American economist, Henry Manne, had coined the phrase ‘the market for corporate control’.33 The right to manage a corporation was an asset that could be bought and sold.

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That’s my vision. That’s my dream,’ said Reed. ‘My goal is increasing shareholder value,’ Sandy [Weill] interjected, glancing frequently at a nearby computer monitor displaying Citigroup’s changing stock price.37 Weill ousted Reed, but within eight years Citigroup’s share price would have lost almost all its value and the business would be rescued by the US government. In an illuminating comment on the financialisation of business, Jack Welch – now long retired from General Electric – would in 2009 proclaim shareholder value ‘the dumbest idea in the world’.38 We are the 1 per cent Ill fares the land, to hastening ills a prey Where wealth accumulates, and men decay.

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The finance sector today plays a major role in politics: it is the most powerful industrial lobby and a major provider of campaign finance. News bulletins report daily on what is happening in ‘the markets’ – by which they mean securities markets. Business policy is dominated by finance: the promotion of ‘shareholder value’ has been a mantra for two decades. Economic policy is conducted with a view to what ‘the markets’ think, and households are increasingly forced to rely on ‘the markets’ for their retirement security. Finance is the career of choice for a high proportion of the top graduates of the top schools and universities.

pages: 313 words: 94,490

Made to Stick: Why Some Ideas Survive and Others Die
by Chip Heath and Dan Heath
Published 18 Dec 2006

The six principles presented earlier are your best weapons. They can be used as a kind of checklist. Let’s take the CEO who announces to her staff that they must strive to “maximize shareholder value.” Is this idea simple? Yes, in the sense that it’s short, but it lacks the useful simplicity of a proverb. Is it unexpected? No. Concrete? Not at all. Credible? Only in the sense that it’s coming from the mouth of the CEO. Emotional? Um, no. A story? No. Contrast the “maximize shareholder value” idea with John F. Kennedy’s famous 1961 call to “put a man on the moon and return him safely by the end of the decade.” Simple? Yes. Unexpected?

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Herb Kelleher could tell a flight attendant that her goal is to “maximize shareholder value.” In some sense, this statement is more accurate and complete than that the goal is to be “THE low-fare airline.” After all, the proverb “THE low-fare airline” is clearly incomplete—Southwest could offer lower fares by eliminating aircraft maintenance, or by asking passengers to share napkins. Clearly, there are additional values (customer comfort, safety ratings) that refine Southwest’s core value of economy. The problem with “maximize shareholder value,” despite its accuracy, is that it doesn’t help the flight attendant decide whether to serve chicken salad.

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It tempts them to use language that is sweeping, high-level, and abstract: The most efficient manufacturer of semiconductors! The lowest-cost provider of stereo equipment! World-class customer service! Often, leaders aren’t even aware that they’re speaking abstractly. When a CEO urges her team to “unlock shareholder value,” that challenge means something vivid to her. As in the Tappers and Listeners game, there’s a song playing in her head that the employees can’t hear. What does “unlocking shareholder value” mean for how I treat this particular customer? What does being the “highest-quality producer” mean for my negotiation with this difficult vendor? Now, leaders can’t unlearn what they know. But they can thwart the Curse of Knowledge by “translating” their strategies into concrete language.

pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification
by Paul Roberts
Published 1 Sep 2014

A corporation is not some social entity with dependent constituencies. It is merely a legal contrivance, a “nexus of a set of contracting relationships,”2 as economist Michael Jensen put it, whose sole purpose is maximizing “shareholder value.” This nexus is no more obligated to anyone else (employees, say) than you or I am obligated to shop at a particular grocery store.† For advocates of “shareholder value” theory, it was this very idea of social obligations (that business somehow owed workers, or any other part of society, anything beyond efficient operations) that led so many firms to fail in their real social obligation: maximizing the wealth upon which all social progress depends.

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As Reagan famously quipped, “The most terrifying words in the English language are: I’m from the government and I’m here to help.” This new faith in free markets trickled down into every social sector. At many law schools and business schools, shareholder value became the new orthodoxy for future business leaders—despite some glaring inconsistencies. Damon Silvers, a labor lobbyist in Washington, DC, who graduated from both Harvard Business and Law Schools shortly after the shareholder revolution, recalls how shareholder value theory clashed with some of the more traditional management ideas. “You would hear a professor saying, ‘A firm is a nexus of contracts; what matters is incentives’; and then literally ten minutes later, they would talk about the importance of teamwork.

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Here was the corporate variation on Adam Smith’s “invisible hand.” Companies turned loose to maximize their own wealth would improve society’s fortunes far more efficiently than would any government-induced strategy based on an ideal of social responsibility. By the 1980s the logic of efficient markets and shareholder value had expanded into a political philosophy. The market was not only the most efficient arbiter of corporate strategy, but also the most efficient means to organize a free society. The shift away from the managed economy of the postwar and the embrace of an unfettered, “efficient” marketplace was paralleled by a rightward swing in American political culture.

Deep Value
by Tobias E. Carlisle
Published 19 Aug 2014

An engaged shareholder can reduce agency costs by concentrating managers on creating shareholder value instead of pursuing other agendas. Any shareholder may do this, but, as Graham suggests, it does require that they realize their power as owners. Activist investors pressure boards to remove underperforming managers, stop value-destroying mergers and acquisitions, disgorge excess cash and optimize the capital structure, or press for a sale of the company, all of which are designed only to improve shareholder value. As a portfolio, companies with the conditions in place for activism offer asymmetric, market-beating returns.

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If management wouldn’t heed his exhortations as a shareholder, he would push for control of the board through a proxy contest—a means for shareholders to vote out incumbent management and replace them with new directors. In a proxy contest, competing slates of directors argue why they are better suited to run the company and enhance shareholder value. If he didn’t succeed through the proxy contest, he could launch a tender offer or sell his position back to the company in a practice known as greenmail. A neologism possibly created from the words blackmail and greenback, greenmail is a now-unlawful practice in which the management of a targeted company pays a ransom to a raider by buying back the stock of the raider at a premium to the market price.

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The letter opened, “Are you as tired as we are of seeing your investment in Genzyme erode because of management’s continuing track record of avoidable missteps and subpar performance in dealing with manufacturing problems at the company?” The main problem—capitalized in the letter—was that, “SEVERE PROBLEMS IN MANUFACTURING HAVE RESULTED IN A SIGNIFICANT DESTRUCTION OF NEAR-TERM AND LONG-TERM SHAREHOLDER VALUE.” Icahn charged that the board was “asleep at the wheel” and described Termeer as “King of the Company.” The company had “permanently lost revenues and profits to competitors from its ‘cash cow’ genetics disease franchise as a result of both manufacturing mismanagement and poor strategic planning.

pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
by Justin Fox
Published 29 May 2009

In a 1981 Harvard Business Review article, Rappaport gave the approach a name that stuck: The most basic question for any strategic planner in business, he wrote, was “Will the corporate plan create value for shareholders?”27 To figure out how to create this “shareholder value,” Rappaport continued, one had to measure the expected return from any corporate investment against the cost of capital. To compute the cost of capital, Rappaport recommended using the Ibbotson-Sinquefield equity risk premium and Barr Rosenberg’s measures of beta. That was all fine and good, but corporate executives weren’t going to focus on creating shareholder value just because they’d read about it in the Harvard Business Review. They needed incentives. Linking pay to stock prices was one way to do it, but that approach had fallen mostly out of favor in the 1970s.

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Fischer Black Chooses to Focus on the Probable Finance scholars figure out some ways to measure and control risk. More important, they figure out how to get paid for doing so. 9. Michael Jensen Gets Corporations to Obey the Market The efficient market meets corporate America. Hostile takeovers and lots of talk about shareholder value ensue. The Challenge 10. Dick Thaler Gives Economic Man a Personality Human nature begins to find its way back into economics in the 1970s, and economists begin to study how markets sometimes fail. 11. Bob Shiller Points Out the Most Remarkable Error Some troublemaking young economists demonstrate that convincing evidence for financial market rationality is sadly lacking. 12.

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As it traveled from college campuses in Cambridge, Massachusetts, and Chicago in the 1960s to Wall Street, Washington, and the boardrooms of the nation’s corporations, the rational market hypothesis strengthened and lost nuance. It was a powerful idea, helping to inspire the first index funds, the investment approach called modern portfolio theory, the risk-adjusted performance measures that shape the money management business, the corporate creed of shareholder value, the rise of derivatives, and the hands-off approach to financial regulation that prevailed in the United States from the 1970s on. In some aspects the story of the rational market hypothesis parallels and is intertwined with the widely chronicled rebirth of pro-free-market ideology after World War II.

pages: 344 words: 104,522

Woke, Inc: Inside Corporate America's Social Justice Scam
by Vivek Ramaswamy
Published 16 Aug 2021

They were well aware that limited shareholder liability was effectively a necessity to spawn unprecedented economic growth, but they also knew that it would create a monster that could eventually supplant democracy itself. So they crafted a clever solution… one that already existed, actually. Counterintuitively, it was actually the legal mandate to maximize shareholder value. To protect against corporations becoming behemoth monsters, corporations needed to be restricted to their purposes. They needed to be kept in their lane. Maximizing shareholder value wasn’t about unleashing corporate greed, or rewarding shareholders, or even about unlocking greater economic productivity. Rather, it was about reining in corporate power—by preventing an abuse of the corporate form to aggregate undue power and social influence and limiting corporations to focus on the humdrum activity of selling goods and services.

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The BJR was never intended to protect executives from liability for corporate actions that weren’t motivated by maximizing profits for shareholders in the first place. Legal scholars almost universally agree that the only reason for the BJR is that executives and directors are supposed to be the stewards for protecting shareholder value. That’s why it’s called the business judgment rule, not the “social judgment rule.”23 The BJR makes little sense if it protects executives who act on their own whims and interests instead of maximizing shareholder value. The very risk of bearing personal liability for a new class of “conflicts of interest” that didn’t previously exist would have the effect of changing corporate behavior—in my opinion, strictly for the better.

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Where did this notion that CEOs were supposed to pursue social ends come from in the first place? If my employees and even some of my investors believed in this new philosophy, then why was I so hesitant to get on board? Was I wrong? Why was I hopelessly clinging to the antiquated ideal of maximizing shareholder value? As it turns out, the answer wasn’t so simple. THE MILTON FRIEDMAN–APPROVED account of the corporation goes something like this. DJ, my barber since childhood in Sharonville, Ohio, started a barber shop because it was his dream to run a business and to drive a Corvette to work. In order to do this, he needed enough money to buy that Corvette.

pages: 305 words: 79,303

The Four: How Amazon, Apple, Facebook, and Google Divided and Conquered the World
by Scott Galloway
Published 2 Oct 2017

Amazon now has all the pieces in place for zero-click ordering—AI, purchase history, warehouses within twenty miles of 45 percent of the U.S. population, millions of SKUs, voice receptors in the wealthiest American households (Alexa), ownership of the largest cloud/big data service, 460 (soon thousands) brick-and-mortar stores, and the world’s most trusted consumer brand. That is why Amazon will be the first $1 trillion market cap company. Now, you may ask: What about Apple and Uber? Since 2008, those two companies have created more shareholder value than any other public or private firm. The key to their success was the iPhone and GPS ordering and tracking—and that’s very different from Amazon’s strategy, right? Wrong. Their secret sauce was much more mundane: breakthrough stores for Apple and reduced friction for Uber. It’s not the GPS tracking illuminating where Javier and his Lincoln MKS are, but your ability to bomb out of the car/store without the friction of paying.

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I envisioned creating a consortium of newspaper owners—the Sulzbergers of the Times, the Grahams of the Washington Post, the Newhouses, the Chandlers, Pearson, and Germany’s Axel Springer, among others. This group would represent the highest-quality, most differentiated media content in the Western world. This was our one and only chance to staunch the decline of print journalism and capture (back) billions in shareholder value. It wouldn’t have lasted forever. But for an also-ran search engine like Microsoft’s Bing, it could have provided a potent weapon against Google. Bing at that point had about 13 percent share of search. Exclusive rights to differentiated content via iconic brands, whether from the Times, the Economist, or Der Spiegel, had to be worth a few points of market share.

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I had heard from two different sources that Michael Bloomberg was also contemplating a bid for the Times. Term limits, it seemed, were about to force him from office, and the Times was the perfect project for a New York billionaire who had taken financial information, brought it into the digital age, and created tens of billions of shareholder value in the process. (We didn’t know at the time that when you are Michael Bloomberg, “term limit” is more of a suggestion than a real limit. Bloomberg went on to strong-arm the city council into a third term.) Finally, if all else failed, the New York Times Company owned a bunch of stuff we should, and would, sell, including: The seventh tallest building in America About.com 17 percent of the Boston Red Sox (wtf?)

pages: 596 words: 163,682

The Third Pillar: How Markets and the State Leave the Community Behind
by Raghuram Rajan
Published 26 Feb 2019

If they join a firm where management maximizes shareholder value only, employees know that when forced to choose between investing in employees and enhancing shareholder value, the firm will choose the latter if there is a conflict. Rationally, employees will know they will not see the increment to their wages if that firm had to make the training decision. They will therefore require additional compensation, equal to the prospective foregone increase in wages, to join a firm that does not invest in training relative to one that does. Consequently, the shareholder value maximizing firm saves nothing in wages over time.

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Friedman’s dictum had an “invisible hand” aspect to it—by maximizing the value of the only claim to the corporation that was not fixed, management would not just be maximizing shareholder value but also the corporation’s value, and thus the corporation’s contribution to society. Friedman firmly rejected any role for the corporation in helping the state do its job, for example, in containing inflation, or in undertaking charitable activities, especially if it impinged on its profitability. Friedman’s views had enormous influence, both in academia and outside. The notion that corporate social responsibility began and ended with the corporation maximizing shareholder value was very clear and was consistent with the growing ethic of individualism.

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To the extent that the renegotiation breeched employee trust, we may all have been the losers—it may have transformed airline workers from being customer-friendly and willing to go the extra mile for the airline to being suspicious of management, unhappy, transactional, and working only by the book. Even seen from the best interests of the corporation, let alone society, shareholder value maximization may be inappropriate in some circumstances. In a sense, the principle of maximizing shareholder value strips transactions of their corporate and social context. This is a good starting point for deciding whether a transaction is worth doing, and is particularly useful when custom and tradition obscure underlying economic rationales.

pages: 385 words: 133,839

The Coke Machine: The Dirty Truth Behind the World's Favorite Soft Drink
by Michael Blanding
Published 14 Jun 2010

He set the tone for other companies, who rushed to please Wall Street by any means necessary—including accounting tricks, stock buybacks, and rampant ac quisitions of other companies. Flush with stock options, CEOs profited handsomely, even as they sometimes hurt the long-term success of their companies through an emphasis on short-term growth. Outside of Jack Welch, no CEO was associated with the “shareholder value movement” more than Roberto Goizueta, who became a darling of Wall Street in the 1980s. “I wrestle over how to build shareholder value from the time I get up in the morning to the time I go to bed,” he once said. “I even think about it when I am shaving.” In the days before the In ternet, he had a computer screen installed in a conference room on the twenty-fifth floor of Coca-Cola headquarters with a live feed from the New York Stock Exchange that continually monitored Coca-Cola’s stock price; he put another screen at the main entrance to Coke headquarters, so it would be the first thing employees would see as they walked in the door and the last thing they’d see as they left.

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Page 64 focusing everything on their quarterly earnings: John D. Martin and J. William Petty, Value Based Management: The Corporate Response to the Shareholder Movement (Bos ton: Harvard Business School Press), 13–28. Page 64 “shareholder value movement”: Betsy Morris, “The New Rules,” Fortune, August 2, 2006. Page 64 cutting waste and inefficiency: Allan A. Kennedy, The End of Shareholder Value (Cambridge, MA: Perseus, 2002), 49–61. NOTES 3 08 Page 64 rushed to please Wall Street: Betsy Morris, “Tearing Up Jack Welch’s Playbook,” Fortune, July 11, 2006; Kennedy, 164–166. Page 64 hurt the long-term success of their companies: Kennedy, xi, 63–66; “Buy Now, While Stocks Last,” The Economist, July 17, 1999; John Cassidy, “The Greed Cycle: How the Financial System Encouraged Corporations to Go Crazy,” The New Yorker, September 23, 2002.

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Kaufman, Francine R. Diabesity: The Obesity-Diabetes Epidemic That Threatens America—and What We Must Do to Stop It. New York: Bantam, 2005. Kay, Ira T. CEO Pay and Shareholder Value: Helping the U.S. Win the Global Economic War. Boca Raton, FL: St. Lucie Press, 1998. Kelly, Marjorie. The Divine Right of Capitalism: Dethroning the Corporate Aristocracy. San Fran cisco: Barrett-Koehler, 2003 (orig. pub. 2001). Kennedy, Allan A. The End of Shareholder Value. Cambridge, MA: Perseus, 2002. BIBLIOGRAPHY 363 Kirk, Robin. More Terrible Than Death: Massacres, Drugs, and America’s War in Colombia. New York: Public Affairs, 2003.

pages: 457 words: 143,967

The Bank That Lived a Little: Barclays in the Age of the Very Free Market
by Philip Augar
Published 4 Jul 2018

Customers flocked to Midland and by the end of the year all banks had to follow suit. The ‘shareholder value’ revolution – companies should be run in the interests of shareholders rather than other stakeholders – was in full swing and was being modelled most famously by ‘Neutron Jack’ Welch, chairman of GE.4 Encouraged by reward schemes that paid out if share price targets were reached and by professional fund managers who were themselves measured on the quarterly performance of their share portfolios, executives sought to emulate Welch, sometimes sacrificing longer-term shareholder value in the interests of immediate profits. This was dangerous in every industry but especially so in banking.

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In the last quarter of the twentieth century, financial institutions managing pension funds and pooled savings replaced private individuals as the main owners of stock market listed companies. These asset managers – sometimes called ‘fund managers’ or simply ‘institutions’ – were well organized and, empowered by the theory of shareholder value, expected to be listened to. Many were sceptical about what they saw as Barclays’ ill-timed dash for growth, a perception exacerbated by Quinton’s slogan of ‘Number 1 by ’91’, a reference to his determination to overtake National Westminster. ‘In the poo by ’92’, replied the cynics. There was nearly a shareholders’ revolt against the rights issue, but in the end the big institutions decided that it would be more damaging to their investments to cancel the issue than to proceed with it.

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It made over half of its earnings outside Canada and was indeed a mini-version of everything that Barclays wanted to be. Could Barrett do it again on a bigger stage? The country boy who had started by carrying cheques around the City in 1962 was now a thoroughly modern chief executive. The Irish lilt had been overlain by a Canadian accent, as he discussed shareholder value, economic profit (profits adjusted for the cost of capital) and other fashionable business concepts. Middleton’s Nominations Committee – himself, Arculus, Jarvis, Mobbs and Hilary Cropper – could not make him out. He spoke a lot of good sense but was very laid back and smoked throughout the interviews at Spencer Stuart’s no smoking offices.

pages: 561 words: 157,589

WTF?: What's the Future and Why It's Up to Us
by Tim O'Reilly
Published 9 Oct 2017

An aside: I’ve always had mixed feelings about public benefit corporations and their lighter-weight cousins, benefit corporations, or B corps, which certify to their investors that they do take factors other than shareholder value into account, but are not legally required to do so. I love the idea of public benefit, but I hate to accept the idea that a regular corporation is legally obliged to ignore it. Law professor Lynn Stout’s book The Shareholder Value Myth makes what appears to be a compelling case that shareholder value primacy has no legal basis, but Leo Strine, the chief justice of the Delaware Supreme Court, argues otherwise. And given that most US corporations are registered under Delaware law, Strine’s views carry more legal weight.

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Trump made much of this incident during his campaign, pointing to labor outsourcing as the root of the problem. But why do companies seek ever-cheaper labor? Carrier’s parent company, United Technologies, explained that “the cuts are painful but are necessary for the long term competitive nature of the business and shareholder value creation.” United Technologies Chief Financial Officer Akhil Johri gave the game away with his final words: “. . . and shareholder value creation.” The article went on to explain: Wall Street is looking for United Technologies to post a 17 percent increase in earnings per share over the next two years, even though sales are expected to rise only 8 percent. Bridging that gap means cutting costs wherever savings can be found, as Mr.

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But it Should Be,” Money Talking, WNYC, January 16, 2015, http://www.wnyc.org/story/failure-not-an-option-but-it-should-be/. 286 Three had no investment at all from VCs: Bryce Roberts, “Helluva Lifestyle Business You Got There,” Medium, January 31, 2017, https://medium.com/strong-words/helluva-lifestyle-business-you-got-there-e1ebd3104a95. 286 which he called indie.vc: Bryce Roberts, “We Invest in Real Businesses,” indie.vc, retrieved April 3, 2017, http://www.indie.vc. 287 tens of millions in distribution: Jason Fried, “Jason Fried on Valuations, Basecamp, and Why He’s No Longer Poking the World in the Eye,” interview with Mixergy, April 4, 2016, https://mixergy.com/interviews/basecamp-with-jason-fried/. 287 “if growth is not immediate and meteoric”: Marc Hedlund, “Indie.vc, and focus,” Skyliner (blog), December 14, 2016, https://blog.skyliner.io/indie-vc-and-focus-8e833d8680d4. 289 “faster than any company in Silicon Valley”: Hank Green, “Introducing the Internet Creators Guild,” June 15, 2016, https://medium.com/internet-creators-guild/introducing-the-internet-creators-guild-e0db6867e0c3. 290 at the Vatican in November 2016: Fortune +Time Global Forum 2016, “The 21st Century Challenge: Forging a New Social Compact,” Rome and Vatican City, December 2–3, 2016, http://www.fortuneconferences.com/wp-content/uploads/2016/12/Fortune-Time-Global-Forum-2016-Working-Group-Solutions. pdf. 290 by $165 billion: Google, Economic Im-pact, United States 2015, retrieved Dec-ember 12, 2016, https://economicimpact. google.com/#/. 290 more than 60% of their traffic came from search: Nathan Safran, “Organic Search Is Actually Responsible for 64% of Your Web Traffic (Thought Experiment),” July 10, 2014, https://www.conductor.com/blog/2014/07/organic-search-actually-responsible-64-web-traffic/. 291 commissioned a report: Yancey Strickler, “Kickstarter’s Impact on the Creative Economy,” The Kickstarter Blog, July 28, 2016, https://www.kickstarter.com/blog/kickstarters-impact-on-the-creative-economy. 291 have gone on to great success: Amy Feldman, “Ten of the Most Successful Companies Built on Kickstarter,” Forbes, April 14, 2016, https://www.forbes.com/sites/amyfeldman/2016/04/14/ten-of-the-most-successful-companies-built-on-kickstarter/#4dec455f69e8. 292 register as a public benefit corporation: Yancey Strickler, Perry Chen, and Charles Adler, “Kickstarter Is Now a Benefit Corporation,” The Kickstarter Blog, September 21, 2015, https://www.kick starter.com/blog/kickstarter-is-now-a-benefit-corporation. 292 regular cash distributions to their shareholders: Joshua Brustein, “Kickstarter Just Did Something Tech Startups Never Do: It Paid a Dividend,” Bloomberg, June 17, 2016, https://www.bloomberg.com/news/articles/2016-06-17/kickstarter-just-did-something-tech-startups-never-do-it-paid-a-dividend. 292 shareholder value primacy has no legal basis: Lynn Stout, The Shareholder Value Myth (San Francisco: Berrett-Koehler, 2012). 292 argues otherwise: Leo E. Strine, “Making It Easier for Directors to ‘Do the Right Thing’?,” Harvard Business Law Review 4 (2014): 235, University of Pennsylvania Institute for Law & Economics, Research Paper No. 14–41, posted December 18, 2014, https://ssrn.com/abstract=2539098. 293 “if not more than, the bottom line”: Etsy, “Building an Etsy Economy: The New Face of Creative Entrepreneurship,” 2015, retrieved April 4, 2017, https://extfiles.etsy.com/Press/reports/Etsy_NewFaceofCreativeEntrepreneur ship_2015.pdf. 293 the ouster of Chad Dickerson, Etsy’s CEO: The Associated Press, “Etsy Replaces CEO, Cuts Jobs Amid Shareholder Pressure,” ABC News, May 2, 2017, http://abcnews.go.com/Business/wireStory/etsy-replaces-ceo-cuts-jobs-amid-shareholder-pressure-47167426. 293 supported more than 10,000 jobs: “Airbnb Community Tops $1.15 Billion in Economic Activity in New York City,” Airbnb, May 12, 2015, https://www.airbnb.com/press/news/airbnb-community-tops-1-15-billion-in-economic-activity-in-new-york-city. 293 helped them stay in their home: “Airbnb Economic Impact,” Airbnb, retrieved April 4, 2017, http://blog.airbnb.com/economic-impact-airbnb/. 294 A third-party economic study: Peter Cohen, Robert Hahn, Jonathan Hall, Steven Levitt, and Robert Metcalfe, “Using Big Data to Estimate Consumer Surplus: The Case of Uber,” National Bureau of Economic Research, Working Paper No. 22627, September 2016, doi:10.3386/w22627. 294 nine million third-party sellers: Duncan Clark, Alibaba: The House That Jack Built (New York: Harper, 2016), 5. 294 in order to favor more lucrative sales by big brands: Ina Steiner, “eBay Makes Big Promises to Small Sellers as SEO Penalty Still Stings,” eCommerce Bytes, April 23, 2015, http://www.ecommercebytes.com/cab/abn/y15/m04/i23/s02. 294 half of all private sector employment: “SBA Advocacy: Frequently Asked Questions” Small Business Administration, September 2012, retrieved May 12, 2017, https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf. 295 “now drying the clothes”: Steve Baer, “The Clothesline Paradox,” CoEvolution Quarterly, Winter 1975, retrieved April 3, 2017, http://www.wholeearth.com/issue/2008/article/358/the.clothesline.paradox. 296 value as and if created: Mariana Mazzucato, The Entrepreneurial State (London: Anthem, 2013), 185–87. 296 “a minuscule fraction”: William D.

pages: 353 words: 81,436

Buying Time: The Delayed Crisis of Democratic Capitalism
by Wolfgang Streeck
Published 1 Jan 2013

While governments hoped that this would bring faster growth and in any case relieve them of political responsibilities, employers invoked the expansion of markets and sharper competition to justify the degrading of wages and work conditions or the widening of wage differentials.53 At the same time, capital markets were transformed into markets for corporate control, which made of ‘shareholder value’ the supreme maxim of good management.54 In many places, even in Scandinavia, citizens were referred to private education and insurance markets as a supplement or even alternative to public providers, with the option of taking up credit to pay the bills. Economic inequality grew everywhere by leaps and bounds (Fig. 1.3).55 In this way and others, responding in more or less the same way to the pressure coming from the owners and managers of their ‘economy’, the developed capitalist countries shed the responsibility they had taken on in mid-century for growth, full employment, social security and social cohesion, handing the welfare of their citizens more than ever over to the market.

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Goldthorpe (ed.), Order and Conflict in Contemporary Capitalism, Oxford: Clarendon Press, 1984; B. Palier and K. Thelen, ‘Institutionalizing Dualism: Complementarities and Change in France and Germany’, Politics and Society, vol. 38/1, 2010, pp. 119–48. 54 See Martin Höpner, Wer beherrscht die Unternehmen? Shareholder Value, Managerherrschaft und Mitbestimmung in Deutschland, Frankfurt/Main: Campus, 2003. 55 Fig. 1.3 shows the evolution of the Gini coefficient, the most commonly used measure of income inequality, in the seven countries used as examples (see fn. 15 in this chapter). The Gini coefficient measures the deviation of the actual distribution from equal distribution.

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In the debt state, therefore, a second category of stakeholders appears alongside the citizens who, in the democratic tax state and established political theory, constituted the only reference group of the modern state. The rise of creditors to become the second ‘constituency’62 of the modern state is strikingly reminiscent of the emergence of activist shareholders in the corporate world under the ‘shareholder value’ doctrine of the 1980s and 1990s.63 Like the boards of publicly listed companies in relation to the new ‘markets for corporate control’, the governments of today’s debt states in their relationship with the ‘financial markets’ are forced to serve a further set of interests whose claims have suddenly increased because of their greater capacity to assert themselves in more liquid financial markets.

pages: 482 words: 149,351

The Finance Curse: How Global Finance Is Making Us All Poorer
by Nicholas Shaxson
Published 10 Oct 2018

They are paid to help these clients – large banks and multinationals, hedge funds, private equity firms and so on – to avoid tax, disclosure, laws and rules, so it is all but inevitable that they have developed an anti-state, anti-tax, anti-regulation corporate culture and the obsession with shareholder value that I described in the last chapter. As a result, they comprise an interest group which incubates and accelerates a financialising London-centric shared world view. The Blob is not centrally organised, but given its members’ common affinities, standard duties to increase shareholder value to clients, and deep penetration of government offices, it is almost a political actor in its own right. The advisory, consulting and accounting firms that populate the Blob have become what Professor Adam Leaver of Sheffield University calls ‘super-spreaders’ of finance fever across the private sector, as public listed companies increasingly learn the extractive techniques pioneered by private equity, with towering stacks of companies plugged into tax havens using clever mixes of debt and equity to suck income out of subsidiaries while keeping the risks inside those same subsidiaries, so resting on other people’s shoulders.

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Third, if you tied pay to performance, that would make those already laser-focused executives work even harder and focus even more fiercely on generating those profits. The general idea, explains Peter Morris, a veteran banker and commentator on private equity, was ‘capitalism on steroids’.5 Jensen’s ideas rest on the concept of shareholder value or, to be more accurate, shareholder primacy. This was a radical departure from previous eras, when corporations were run with many goals in mind. Peter Drucker’s classic 1946 study, The Concept of the Corporation, argued that big business was ‘America’s representative social institution … its social function as a community is as important as its economic function as an efficient producer’.

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But the most tragic part of this sorry tale is still to come. Many people are dimly aware of the predatory nature of private equity and hedge funds, but reconcile themselves to it with the idea that if there are losers having wealth taken out of their pockets, this is balanced by winners elsewhere. This is the old Chicago School myth of shareholder value, the quasi-religious belief held by many in the financial markets that if you focus on profits and profits alone, it all washes out in the end and everyone is happy. There are other justifications too. With home care, the problem isn’t just the presence of wealth extractors perched atop the system, but also the fact that there isn’t enough money in the system in the first place as a result of savage cuts to council budgets.

pages: 164 words: 57,068

The Second Curve: Thoughts on Reinventing Society
by Charles Handy
Published 12 Mar 2015

The responsibilities of the directors are to the company as a whole, not to the shareholders alone. It was a widespread misinterpretation of company law that gave rise to the elevation of shareholder value as the prime purpose of the company, to short-term thinking and the splurge of bonuses tied to share performance. As Jack Welch, the famed CEO of GE, was to remark, although only after he had left the firm, ‘shareholder value is the dumbest idea in the world’. It may be a dumb idea but it was pervasive. In 1998 I was asked to meet with the committee that were updating the British Companies Act. I made them aware of what I felt was the true purpose of a company but they told me that they were under instructions from the Treasury to ensure that the shareholder must remain the central focus.

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I made them aware of what I felt was the true purpose of a company but they told me that they were under instructions from the Treasury to ensure that the shareholder must remain the central focus. Eventually they added the word ‘enlightened’ before ‘shareholder value’ and included a clause stating that the interests of other stakeholders must be recognised. Those were weasel words, easily ignored. It is tempting to lay that fatal misinterpretation of company law at the door of two men, Michael Jensen and William H. Meckling, who published a paper in 1976 with the unexciting title of ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ in the then little-known Journal of Financial Economics, although the roots of their idea can be found in the thesis of their one-time colleague Milton Friedman who argued, famously, back in 1970 that ‘the social responsibility of business is to increase its profits’.

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All this, incidentally, while still luxuriating in the security of their basic salaries. Naturally this focused managerial efforts on the immediate and shorter-term results, often at the expense of longer-term investments. To make matters worse, the business schools, which were just starting to proliferate around the world at that time, picked up the idea of shareholder value as the point of business and over the next 30 years disgorged a generation of bright and ambitious young people into corporations with this idea in their heads. In 1971 I invited Jim Slater to speak to the students at the London Business School. Slater, as part of Slater Walker, was the uncrowned king of the emerging private equity industry.

pages: 244 words: 76,192

Execution: The Discipline of Getting Things Done
by Larry Bossidy
Published 10 Nov 2009

For too long companies—and this often involved boards of directors— set “shareholder value” as one of the goals to be measured and rewarded in compensation plans. But the directors and CEOs who set shareholder value as a goal missed an essential point. Increasing shareholder value is an outcome, not a goal. If you set the right strategy with the right goals and execute well to implement the strategy and achieve the goals—growth in earnings per share, good cash flow, improved market share, for example—then shareholder value is the result. Get everything else right and shareholder value will take care of itself. EXPAND PEOPLES’ CAPABILITIES.

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The division, with some 20,000 employees, was the product of a merger in 2001 of two companies in the same industry. It had a new leadership team, and this was only its second meeting. The central issue for the leadership team was how to create a new culture to improve unacceptable performance. Return on capital was less than 6 percent, and shareholder value was being destroyed. The new CEO of the division and the leadership team knew that cost savings through synergies would not be enough to make the division an outstanding performer. The general practice in both merged businesses was not to hold people accountable for commitments they had made individually.

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THE IMPORTANCE OF ROBUST DIALOGUE You cannot have an execution culture without robust dialogue—one that brings reality to the surface through openness, candor, and informality. Robust dialogue makes an organization effective in gathering information, understanding the information, and reshaping it to produce decisions. It fosters creativity—most innovations and inventions are incubated through robust dialogue. Ultimately, it creates more competitive advantage and shareholder value. Robust dialogue starts when people go in with open minds. They’re not trapped by preconceptions or armed with a private agenda. They want to hear new information and choose the best alternatives, so they listen to all sides of the debate and make their own contributions. When people speak candidly, they express their real opinions, not those that will please the power players or maintain harmony.

pages: 263 words: 77,786

Tomorrow's Capitalist: My Search for the Soul of Business
by Alan Murray
Published 15 Dec 2022

“Jack Welch at the end of the twentieth century, he was it when it came to leadership,” I said.13 “His book [Jack: Straight from the Gut14] sold like crazy, he developed a whole generation of CEOs who went on to lead Boeing, Home Depot, 3M, et cetera. He was a phenomenally successful businessman who increased shareholder value at GE a hundredfold. But there is a sense that the rules of the game have changed pretty dramatically since he left the stage. I wonder if you could talk about that.” McDermott, who remembered with pleasure our conversation backstage with Welch and his wife Susie, said, “Jack was an incredible force of nature and figured you had to be number one and two in any business and held people highly accountable, and if you didn’t perform, you didn’t last long.

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7 “I believe it’s largely cosmetic,” Bebchuk replied. “And if we keep talking about it, and have more interviews and more calls, we should not expect very substantial benefits to stakeholders to follow. And two reasons for this. One is that corporate leaders do not have significant incentives to protect stakeholders beyond what would serve shareholder value. They simply don’t. And, secondly, we have to look at the evidence. And the evidence that colleagues and I’ve put forward is that, in fact, when CEOs and other corporate leaders face choices, they do not give independent sway to the interest of stakeholders.” Bebchuk’s point was not without merit.

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So, it doesn’t mean anything.’ Well, not quite. Because I believe that what we might call rhetoric, or culture, or our understanding of what the goals of the corporation are, is super important. “And for the last twenty, thirty years, we’ve said that ‘the goal of the corporation is to maximize shareholder value.’ Which is… one interpretation of fiduciary duty, but only one. And there are other goals that the corporation could have, and those goals are really important. And I believe that shifting the goals of the corporation would make an enormous difference. I don’t think you need to do a wholesale shift in corporate governance in order to do that.”

pages: 339 words: 109,331

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

The essential problem is that the corporate and investment communities have failed to adapt their business practices, and in particular their compensation practices, to an economy in which professional managers who are responsible for other people’s money dominate. “The ubiquitous maxim, ‘We manage to maximize shareholder value,’ is at odds with the way public companies actually operate. Managing for shareholder value means focusing on cash flow, not earnings; it means managing for the long term, not the short term; and, importantly, it means that managers must take risk into account. Instead, many managers seem obsessed with Wall Street’s quarterly earnings expectations game and the short-term share price, thereby compromising long-term shareholder value. “Quarterly performance measurement of fund managers encourages them to prefer the safety of performing acceptably close to their benchmark index over maximizing long-run shareholder returns.

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While we know that in the short run stock prices are affected by both the company’s reported quarterly earnings and the market’s evanescent expectations, we also know that the return on the firm’s capital—the dividends that the company distributes, and the earnings growth that it achieves—ultimately determines 100 percent of shareholder value in the long term. Time Horizons and the Sources of Investment Return So how do we define “shareholder value” for the business corporation? How do we measure that value, and over what period? In particular, should it be the short-term, even momentary, price of the stock? Or should it be the long-term accretion of the firm’s intrinsic value? Truth told, in the long run it makes little if any difference.

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Shareholder proposals relating largely to limiting executive compensation. The report ranked the voting practices of these 26 fund families from the most supportive of efforts to tie executive pay to company performance (and in turn, to shareholder value) to the least supportive of those efforts (see Exhibit 3.1). AFSCME chose categories of shareholder proposals on executive pay that the union believed to be most likely to enhance shareholder value. They dubbed the fund families that most consistently supported measures to rein-in pay the “Pay Constrainers” and those that voted least often for such measures the “Pay Enablers,” with the lowest scores going to them.

pages: 363 words: 109,077

The Raging 2020s: Companies, Countries, People - and the Fight for Our Future
by Alec Ross
Published 13 Sep 2021

A good first step would be to quantify the impacts, both positive and negative, of a business’s decisions on various stakeholders. Today, businesses have countless metrics for measuring shareholder value. There is return on assets, return on equity, price/earnings ratio, internal rate of return, gross and net margins, and on and on. An entire industry is built around accounting metrics for measuring shareholder value. We need similar standards for calculating stakeholder value. Douglas Alexander, a British Labour Party politician and cabinet member, suggests creating the equivalent of generally accepted accounting principles (GAAP) for corporate impact.

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For the first three chapters, I will dig into what has happened over the last fifty years to each of the three key pillars of the social contract—government, business, and citizens. The first chapter looks at the rise in corporate power since the 1970s. Since then, the most destructive aspects of capitalism have been given free rein, as businesses embraced the dogma that shareholder value was the only metric that mattered. Five decades have revealed the brutal cost of that trend: even as companies have risen in power, those gains have not been felt by the vast majority of employees, communities, or other stakeholders. This chapter maps out the past half century’s errors, examines their broader effects—both expected and unexpected—and suggests how we can change course.

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For instance, Amazon announced in the midst of the 2020 COVID-19 pandemic that it would spend $4 billion to increase safety for its nearly six hundred thousand workers. The stock market swung against the company, which saw its share values immediately drop 7.6 percent in response to the decision. Because of a $4 billion investment in the well-being of its workers, $83 billion of shareholder value was lost. Why? Because in the eyes of traders, Amazon’s decision took profits away from shareholders and posed a threat to the bottom line. The absurdity of this form of shareholder capitalism pits the interests of workers and shareholders directly against each other, and it belies both the real health and the real value of the company.

pages: 400 words: 124,678

The Investment Checklist: The Art of In-Depth Research
by Michael Shearn
Published 8 Nov 2011

This will help you maintain an opportunistic attitude. Now let’s take a look at questions that will help you determine if the management team is competent. 39. Does the CEO manage the business to benefit all stakeholders? If you were to ask investors whether shareholder value is more important than customer service at a business, most would answer that it is. What they fail to consider is that shareholder value is a byproduct of a business that keeps its customers happy. In fact, many of the best-performing stocks over the long term are the ones that balance the interests of all stakeholder groups, including customers, employees, suppliers, and other business partners.

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They represent a potential payoff to the manager with no risk: The downside is zero (if the stock price doesn’t increase, there’s no payout to the managers, and if the stock price does increase, then they benefit). Investors believe that giving stock option grants to managers will motivate them to create shareholder value, because it gives them an ownership interest in the business. The problem is that stock options often reward managers for things that they are not responsible for, such as broad economic gains or industry growth. As one investor said: “The argument that someone is worth tens of millions of dollars in compensation per year because his or her company’s market value went up many times is so ludicrous that I’ve always been amazed anyone can espouse it as fair with a straight face.”

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John Mackey, co-founder and CEO of Whole Foods Market, has coined the term conscious capitalism to describe businesses designed to benefit all of their stakeholders, such as customers, employees, investors, and suppliers. Instead of subscribing to the theory that the only purpose of a business is to maximize profits, conscious capitalism proponents believe that increases in shareholder value are the by-product of helping customers, employees, and vendors reach their highest potential. Mackey compares profits to happiness to illustrate his point. Just trying to be happy doesn’t usually work. Instead, we’re happy due to a host of other reasons: a strong sense of purpose, meaningful work, good friends and good health, loving relationships, and the chance to learn, grow, and help others.

pages: 154 words: 47,880

The System: Who Rigged It, How We Fix It
by Robert B. Reich
Published 24 Mar 2020

Another quarter received takeover bids supported by management. Few conditions change minds more profoundly than the imminent possibility of being sacked. Hence, across America, CEOs who were now threatened by being replaced by CEOs who would maximize shareholder value began to view their responsibilities differently: They would maximize shareholder value even more. The corporate statesmen of previous decades became the corporate butchers of the 1980s and 1990s, whose nearly exclusive focus was—in the meat-ax parlance that became fashionable—to “cut out the fat,” “cut to the bone,” and make their companies “lean and mean.”

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Welch encouraged his senior managers to replace 10 percent of their subordinates every year in order to keep GE competitive. As GE opened facilities abroad, staffed by foreign workers costing a small fraction of what GE had paid its American employees, the corporation all but abandoned upstate New York. CEOs have become so obsessed by shareholder value that Robert Goizueta, CEO of Coca-Cola, proclaimed in 1988 that he “wrestle[d] with how to build shareholder value from the time I get up in the morning to the time I go to bed. I even think about it when I am shaving.” Goizueta’s obsession starkly differed from the views of his predecessors, such as Coca-Cola’s former president William Robinson, who in 1959 told an audience at Fordham Law School that executives should not put stockholders first.

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Rather than announce token jobs programs, spreading some money around poor cities, lobbying for lower corporate taxes and fewer regulations whose benefits don’t trickle down, and putting out nice statements about corporate responsibility, these top CEOs could seek to increase the economic and political power of all Americans—giving them a greater voice at their workplace, in their communities, and in Washington, so they won’t need corporate philanthropy. Nothing is stopping them except their own parched, self-serving notion of leadership as maximizing profits and shareholder value. Yet as heads of institutions with the greatest influence over American politics, don’t they also have a duty to the common good? They should be using their unrivaled influence to push for a society where no corporation or set of people can ever again become as rich and powerful as they are.

Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies
by Jeremy J. Siegel
Published 18 Dec 2007

If a firm buys assets, the income from these assets is available to pay future dividends 5 There might be some psychic value to holding a controlling interest in a firm. In that case, the owner values the stock more than minority shareholders value it. CHAPTER 7 Stocks: Sources and Measures of Market Value 99 or otherwise increase value. If a firm repurchases its shares, it reduces the number of shares outstanding and thus increases future per share earnings. Finally, retained earnings can be used to expand the capital of the firm in order generate higher future revenues and/or reduce costs. Some people believe that shareholders value cash dividends the most, and that assertion is probably true in a tax-free world. But from a tax standpoint, share repurchases are superior to dividends.

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Others might argue that debt repayment lowers shareholder value because the interest saved on the debt retired is generally less than the rate of return earned on equity capital. They might also claim that by retiring debt, they lose the ability to deduct the interest paid as an expense (the interest tax shield).6 But debt entails a fixed commitment that must be met in good or bad times, and, as such, the use of debt increases the volatility of earnings. Reducing debt therefore lowers the volatility of future earnings and may not diminish shareholder value.7 Some investors claim the investment of earnings is an important source of value.

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73 Conclusion 74 Appendix: History of the Tax Code 74 Chapter 6 The Investment View of Stocks: How Fickle Markets Overwhelm Historical Facts 77 Early Views of Stock Investing 79 The Influence of Smith’s Work 80 Common Stock Theory of Investment 82 A Radical Shift in Sentiment 82 The Postcrash View of Stock Returns 83 The Beginning of the Great Bull Market 85 Warnings of Overspeculation 86 The Top of the Bubble 88 The Bear Market and Its Aftermath 89 PART 2 VALUATION, STYLE INVESTING, AND GLOBAL MARKETS Chapter 7 Stocks: Sources and Measures of Market Value 95 An Evil Omen Returns 95 Valuation of Cash Flows from Stocks 97 Sources of Shareholder Value 98 The Value of Stock as Related to Dividend Policy 100 viii Earnings Concepts 102 Earnings Reporting Methods 102 The Employee Stock Option Controversy 104 Controversies in Accounting for Pension Costs 105 Standard & Poor’s Core Earnings 107 Earnings Quality 108 Downward Biases in Earnings 109 Historical Yardsticks for Valuing the Market 110 Price-Earnings Ratios 110 The Fed Model, Earnings Yields, and Bond Yields 113 Corporate Profits and National Income 115 Book Value, Market Value, and Tobin’s Q 117 Market Value Relative to the GDP and Other Ratios 119 Conclusion 121 Chapter 8 The Impact of Economic Growth on Market Valuation and the Coming Age Wave 123 GDP Growth and Stock Returns 124 The Gordon Dividend Growth Model 126 Economic Growth and Stock Returns 127 Factors That Raise Valuation Ratios 128 Factors That Impact Expected Returns 129 The Equity Risk Premium 130 More Stable Economy 131 New Justified P-E Ratios 132 The Age Wage 133 Demography Is Destiny 134 The Bankruptcy of Government and Private Pension Systems 135 Reversal of a Century-Long Trend 135 The Global Solution: An Opportunity to Make a Trade 136 Attraction of U.S.

pages: 337 words: 103,273

The Great Disruption: Why the Climate Crisis Will Bring on the End of Shopping and the Birth of a New World
by Paul Gilding
Published 28 Mar 2011

This to me is a shallow and wholly ineffective way to organize people, which is what companies do—organize people to deliver an outcome. Even though this runs counter to the dominant thinking in most companies, it is not actually a radical idea and is well discussed in the business literature. Even the so-called father of shareholder value, former GE CEO Jack Welch, came out after his CEO tenure and said, “On the face of it, shareholder value is the dumbest idea in the world.… Shareholder value is a result, not a strategy.…” It is also the case that markets and business work well only when adequately guided and controlled by society as a whole, through regulation and goal setting by government and by active consumers and community groups holding companies to account.

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In 2002, Don Reed and Murray Hogarth, two of our most experienced advisers, and I released a major report with the title Single Bottom Line Sustainability. It caused quite a stir in the corporate sustainability community around the world because we argued that companies should take only those actions in sustainability that delivered definable financial benefit to the company. It wasn’t that we believed in shareholder value as an end in its own right. Ecos followed its own advice and was clearly purpose focused. We were transparent about being in business to drive change toward sustainability, not to do whatever our clients wanted to pay us for. However, we recognized that unless we gave advice to clients that delivered value, they wouldn’t keep following it.

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The CEO during most of my time with DuPont was Chad Holliday, who still stands out as one of the most committed and thoughtful CEOs I have worked with anywhere in the world. Chad was responsible for leading DuPont’s transformation toward sustainability from 1998 to 2008. My favorite story involving Chad is a fine example of my earlier point about the importance of organizing a company around social purpose, with shareholder value being a measure of success rather than an organizing principle. I was giving a talk with Chad to DuPont’s global safety and sustainability leaders. I raised the issue of DuPont as an institution and who really cared about it. DuPont is a proud company with a two-hundred-year history that lives and breathes its culture; you can’t spend time there without getting a sense of it.

pages: 338 words: 85,566

Restarting the Future: How to Fix the Intangible Economy
by Jonathan Haskel and Stian Westlake
Published 4 Apr 2022

Company accounts provide a simplified, standardised, and reasonably honest way for outsiders to scrutinise the financial health of a business. Simple investment strategies such as index funds and value investing allow laypeople to achieve a return on investment that often outperforms that of highly paid fund managers. Shareholder value management, the management fad of running businesses to maximise returns to stockholders, for better or for worse simplifies the complex business of corporate governance. Inflation targeting provides clear and simple rules to judge the success of central banks. Unfortunately, these useful simplifying features do not work well when it comes to financing intangible-intensive businesses.

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Debt Finance: The Tyranny of Collateral For the majority of businesses, external finance means debt finance—normally a loan from a bank.4 A number of reasons explain the proliferation of debt finance. Most countries’ tax systems favour debt over equity, allowing debt interest payments, but not the cost of equity, to be treated as a tax-deductible expense. In recent decades, the incentives for company managers to optimise their capital structure have sharpened. The shareholder-value movement, the rise of activist investors, and the growth of leveraged buyout funds make it harder for managers to ignore the economic advantages of debt finance. The institutions and norms of debt finance are more abundant than those of equity finance. Banks offer loans, employ loan officers, and use a range of tools to assess creditworthiness; businesses apply for loans.

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This practice doesn’t matter much in a world of high mean reversion: if the worst cohort businesses have a decent chance of getting better, then you can afford to be wrong occasionally if you have a large portfolio of business loans. But in a world where good businesses stay good and bad ones stay bad, poor due diligence is more costly, giving banks another reason to reduce their business lending. Shareholder Value Management in an Age of Spillovers and Synergies Another element of complexity in financial capitalism is corporate governance. Managing a company involves a whole set of complex trade-offs and value judgments. And if that company is publicly held, then its owners—its shareholders—will be a different set of people from the managers who are actually making the decisions.

pages: 193 words: 11,060

Ethics in Investment Banking
by John N. Reynolds and Edmund Newell
Published 8 Nov 2011

An investment bank may not have a “fiduciary” duty of care to a customer (under this definition of a customer), but, nonetheless, from an ethical perspective it has similar duties to other commercial enterprises (in the same way as a retailer) to describe products accurately, and not to mislead. Fiduciary duties would not be expected to conflict with ethical duties in most circumstances. As has been seen in a number of instances during the financial crisis, failing to take ethical issues into account can cause a major loss in shareholder value. Ethical behaviour may in fact protect shareholder value. The approach taken to defend Goldman’s position regarding ABACUS can also be explained in part by moral relativism, applying ethical standards in the context of what was common practice at the time in the market for mortgage-backed securities. This approach, although used in a number of contexts, has clear limitations and is not necessarily supported by other ethical approaches, and is one that does not stand scrutiny from an ethical perspective.

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Given the speed of innovation in the capital markets and investment banking, this can mean that a prescriptive Introduction: Learning from Failure 7 approach to ethics – following compliance rules – does not protect against unethical decisions or actions, which can then have damaging effects. An understanding of ethical principles may therefore have a specific value in protecting reputational and shareholder value. Although investment banks claim to require ethical behaviour, empirical and anecdotal evidence very much contradicts this. Existing investment banking Codes of Ethics are, in practical terms, ineffective, and serve in the main to protect shareholders from abuse by employees, rather than protecting clients.

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In 2007, there was extensive external pressure on HSBC to reform its activities, including pressure from activist shareholders. It became clear from late 2007 onwards, as the financial crisis developed, that while HSBC had eschewed some short-term opportunities for profits, despite highprofile exposure to sub-prime loans in the US, its shareholder value had been more effectively stewarded than that of many other UK and global banks. Institutional shareholders have demanded high returns from commercial banking, potentially higher than could be sustained in the long term from a quasi-utility activity. Pressure from shareholders can effectively change a company’s strategy.

pages: 233 words: 67,596

Competing on Analytics: The New Science of Winning
by Thomas H. Davenport and Jeanne G. Harris
Published 6 Mar 2007

Some companies are working to develop a holistic understanding of both financial and nonfinancial value drivers. A few companies at the frontier are seeking to manage both their current and future shareholder value.7 These organizations are exploring how to infuse their scorecards with data from Wall Street analysts and future-value analytics to gain better insight into the implications of decisions on shareholder value. Companies that develop such a capability might be well on the way to competitive advantage. Reporting and scorecards are most likely to lead to competitive advantage when the business environment is changing dramatically.

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Financial Analytics We’ll start by discussing financial applications, since they of course have the most direct tie to financial performance. There are several categories of financial analytics applications, including external reporting, enterprise performance management (management reporting and scorecards), investment decisions, shareholder value analysis, and cost management. External Reporting to Regulatory Bodies and Shareholders External reporting doesn’t lead to competitive advantage under “business as usual” conditions. It’s not normally an advantage to report more quickly and accurately beyond a certain level. Cisco Systems, for example, has touted over the last several years its ability to close the books instantaneously and to report its results almost immediately at the end of a financial period.

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Choosing a Strategic Focus Organizations initially focus on one or two areas for analytical competition: Harrah’s: Loyalty plus service New England Patriots: Player selection plus fan experience Dreyfus Corporation: Equity analysis plus asset attrition UPS: Operations plus customer data Wal-Mart: Supply chain plus marketing Owens & Minor: Internal logistics plus customer cost reduction Progressive: Pricing plus new analytical service offerings To have a significant impact on business performance, analytical competitors must continually strive to quantify and improve their insights into their performance drivers—the causal factors that drive costs, profitability, growth, and shareholder value in their industry (only the most advanced organizations have attempted to develop an enterprise-wide model of value creation). In practice, most organizations build their understanding gradually over time in a few key areas, learning from each new analysis and experiment. To decide where to focus their resources for the greatest strategic impact, managers should answer the following questions: How can we distinguish ourselves in the marketplace?

Principles of Corporate Finance
by Richard A. Brealey , Stewart C. Myers and Franklin Allen
Published 15 Feb 2014

In this case maximizing shareholder value is a sensible corporate objective. But for now, having glimpsed the problems of imperfect markets, we shall, like an economist in a shipwreck, simply assume our life jacket and swim safely to shore. QUESTIONS 1. Maximizing shareholder value Look back to the numerical example graphed in Figure 1A.1. Suppose the interest rate is 20%. What would the ant (A) and grasshopper (G) do if they both start with $100,000? Would they invest in their friend’s business? Would they borrow or lend? How much and when would each consume? 2. Maximizing shareholder value Answer this question by drawing graphs like Figure 1A.1.

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Some historical evidence suggests that investors demand higher expected rates of return from high-dividend companies, but the evidence is not strong or sufficiently up-to-date to deter a corporation that wants to initiate cash dividends. 16-6 Payout Policy and the Life Cycle of the Firm MM said that dividend policy does not affect shareholder value. Shareholder value is driven by the firm’s investment policy, including its future growth opportunities. Financing policy, including the choice between debt and equity, can also affect value, as we will see in Chapter 18. In MM’s analysis, payout is a residual, a by-product of other financial policies.

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brealey.mhhe.com/c17 MM’s propositions warn us that higher leverage increases both expected equity returns and equity risk. It does not increase shareholder value. Having worked through the example of Macbeth, this much should now seem obvious. But watch out for hidden changes in leverage, such as a decision to lease new equipment or to underfund the pension scheme. Do not interpret any resultant increase in the expected equity return as creating additional shareholder value. 17-3 The Weighted-Average Cost of Capital What did financial experts think about debt policy before MM? It is not easy to say because with hindsight we see that they did not think too clearly.4 However, a “traditional” position emerged in response to MM.

pages: 477 words: 144,329

How Money Became Dangerous
by Christopher Varelas
Published 15 Oct 2019

Then corporate raiders forced management teams to prioritize share price above all else. Maximizing shareholder value became the new mantra. In making management decisions, those in charge had only to ask if the decision would increase the company’s share price, with the most direct means being an increase in profits; if it did, then the decision was easy to justify. Increasing profits is not a bad thing, of course; it’s a vital objective for any company. The model of maximizing shareholder value gave us a clear and concise North Star for making difficult management decisions. It would transform business by focusing action in a way that made the managing of global enterprises efficient and effective like no framework the business world had ever seen before, creating incredible growth, jobs, and opportunities for a globalizing world.

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To meet a quarter’s earnings expectations, a company may be forced to close a sale quickly, settling for a lower price and worse terms, or, more concerning, to pursue less profitable business lines because they provide more immediate revenue opportunities. Thus, management teams might not have the ability to commit to maximizing shareholder value overall, but, rather, they must focus on maximizing quarterly shareholder value, and those two things are seldom aligned. When quarterly reporting requirements were first instituted in 1970, proponents pointed to the need for more transparency to safeguard investors, particularly individuals who may not have had the same access to information as an institutional investor.

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It would transform business by focusing action in a way that made the managing of global enterprises efficient and effective like no framework the business world had ever seen before, creating incredible growth, jobs, and opportunities for a globalizing world. Yet with such disruption, there’s always the risk that the changes in response to that disruption go too far. In that shift from focusing on creating the best product to maximizing shareholder value, something important was lost. Business became much more impersonal and antiseptic. We ourselves no longer had to fire Bob or Sue. Now it could be blamed on an RIF—a “reduction in force,” the acronym itself distancing us from having to face the fact that Bob and Sue were people with families who depended on these jobs.

The Smartphone Society
by Nicole Aschoff

“Neoliberalism”—a model of capitalism emphasizing a reduced state role in regulating markets and providing services, and “free market” competition between countries, companies, and workers as the best way to achieve growth and efficiency—lost its legitimacy.30 In the three decades leading up to the 2008 crisis, advocates of neoliberalism promised to raise all boats through privatizing public services and institutions, shrinking the social safety net, growing the “knowledge economy,” bolstering globalization and free trade, deregulating financial markets, and maximizing shareholder value. Democrats and Republicans reassured skeptics that any pain resulting from these policy objectives would be temporary adjustments as the country shifted gears toward developing a high-tech, skilled workforce guided by efficient capital markets and the carrot and stick of “world-class” competition, which would yield good new jobs and economic growth. Critics pointed to job loss, increased precarity and inequality, and the amoral implications of a shareholder value society, but there wasn’t much room for dissent in the Clinton and George W.

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The triple crisis (economic, social, political) of the 1970s catalyzed a broad shift in ideas about how to regulate and grow capitalism.16 The New Deal assumption that the government should take an interventionist role to protect stakeholders from business overreach and malfunctioning markets lost sway, and a new legitimating framework emphasizing shareholder value, efficient markets, and deregulation came to the fore. Ronald Reagan epitomized these values, promising to get the government “off the backs of the people.” Companies in all sectors began to get a lot more breathing room through tax breaks, decreased oversight, watered-down environmental laws, and defunded federal regulatory agencies.

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Today, the notion that the personal is political continues to resonate. It captures the struggles of ordinary people, especially women, people of color, and millennials, to find work-life balance, to manage debt, and stave off alienation in neoliberal capitalism, an economic system that champions competition, shareholder value, and the slow creep of market relations into every sphere of life. But we can also think about the reverse today—the political has become personal. With our smartphones always at the ready, politics has become seamlessly interwoven into our daily lives: on the way home from work we’ll comment on a tweet thread about a teacher strike happening hundreds of miles away; drinking our morning coffee, we’ll share a video of students sitting in at their congressperson’s office; waiting for the bus we’ll mark “attending” for a Facebook event featuring a local woman running for city council.

pages: 293 words: 78,439

Dual Transformation: How to Reposition Today's Business While Creating the Future
by Scott D. Anthony and Mark W. Johnson
Published 27 Mar 2017

For example, a 2011 article in Psychology Today notes that corporations display attributes of psychotic individuals. Over the past few years, a number of critics have suggested that the era of shareholder value maximization needs to come to an end. Top business thinkers such as Christensen as well as Roger Martin, former dean of the Rotman School at the University of Toronto, and HBS legend Michael Porter have argued that shareholder value has been exposed as a flawed paradigm. Even Michael Jensen, an academic and consultant—whose seminal 1976 article (with William Meckling) helped kick off both the focus on shareholder value as the measure of top executives’ success and the incentive of extensive stock grants (which was intended to encourage them to act like owners)—now rues the unanticipated impact of some of his contributions.

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It is a mindset where we would say, “Let’s manage or minimize our risk and make sure our oversight authorities don’t call us out on any major issue.” It is almost everything that an innovative culture is the opposite of. I think we have, or at least have started to, develop a mindset that we need to embrace change if we are to grow. We need to be a different business if we are to create shareholder value. For his part, dela Cruz highlighted the new disciplines the journey has built. “I believe we have a more systematic, programmatic way of transforming the operating model and have really institutionalized an innovation discipline,” he said. “One thing you can say about Manila Water is when we do this type of project, we really internalize it.”

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In that way, the railroad executives would have better understood the challenge, and the opportunities, represented by the planes that flew over their heads and the telephone and telegraph wires that ran alongside their tracks. Things have gotten worse, because now if you ask most companies why they exist, it isn’t even to sell a particular product or service, much less to serve any customers. No, it is to maximize shareholder value. As Harvard Business School professor Clayton Christensen likes to note, the primary job of many managers is to “source, assemble, and ship numbers.” And short-term numbers at that. Worshipping at what Christensen calls the “church of finance” hollows out a company’s competitive advantage; it loses the capacity to invest in innovation, and that drives the perpetual reinvention necessary in the world of temporary competitive advantage.

pages: 517 words: 139,477

Stocks for the Long Run 5/E: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
by Jeremy Siegel
Published 7 Jan 2014

Corporate History Sector Rotation in the S&P 500 Index Top-Performing Firms How Bad News for the Firm Becomes Good News for Investors Top-Performing Survivor Firms Other Firms That Turned Golden Outperformance of Original S&P 500 Firms Conclusion Chapter 9 The Impact of Taxes on Stock and Bond Returns Stocks Have the Edge Historical Taxes on Income and Capital Gains Before- and After-Tax Rates of Return The Benefits of Deferring Capital Gains Taxes Inflation and the Capital Gains Tax Increasingly Favorable Tax Factors for Equities Stocks or Bonds in Tax-Deferred Accounts? Conclusion Appendix: History of the Tax Code Chapter 10 Sources of Shareholder Value Earnings and Dividends Discounted Cash Flows Sources of Shareholder Value Historical Data on Dividends and Earnings Growth The Gordon Dividend Growth Model of Stock Valuation Discount Dividends, Not Earnings Earnings Concepts Earnings Reporting Methods Operating Earnings and NIPA Profits The Quarterly Earnings Report Conclusion Chapter 11 Yardsticks to Value the Stock Market An Evil Omen Returns Historical Yardsticks for Valuing the Market Price/Earnings Ratio and the Earnings Yield The Aggregation Bias The Earnings Yield The CAPE Ratio The Fed Model, Earnings Yields, and Bond Yields Corporate Profits and GDP Book Value, Market Value, and Tobin’s Q Profit Margins Factors That May Raise Future Valuation Ratios A Fall in Transaction Costs Lower Real Returns on Fixed-Income Assets The Equity Risk Premium Conclusion Chapter 12 Outperforming the Market The Importance of Size, Dividend Yields, and Price/Earnings Ratios Stocks That Outperform the Market What Determines a Stock’s Return?

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In 2013 the top bracket on capital gains was raised to 20 percent for married couples earning over $450,000, and for the first time a Medicare surtax of 3.8 percent was applied to investment income for couples earning more than $250,000. The tax rates on qualified dividend income were set equal to the new capital gains tax rates. 10 * * * Sources of Shareholder Value Earnings and Dividends The importance of dividends for providing wealth to investors is self-evident. Dividends not only dwarf inflation, growth, and changing valuations levels individually, but they also dwarf the combined importance of inflation, growth, and changing valuation levels. —ROBERT ARNOTT, 20031 It is just after 4 p.m. eastern time, and the major U.S. stock exchanges have just closed.

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The reasons investors discount the future are (1) the existence of a risk-free rate, a yield on a safe alternative asset such as government or other AAA-rated securities, which allows investors the ability to transform a dollar invested today into a greater sum tomorrow; (2) inflation, which reduces the purchasing power of cash received in the future, and (3) the risk associated with the magnitudes of expected cash flows, which induces investors of risky assets, such as stocks, to demand a premium to that on safe securities. The sum of these three factors—the risk-free rate, the inflation premium, and the equity risk premium—determines the discount rate for equities. This discount rate is also called the required return on equity or the cost of equity. SOURCES OF SHAREHOLDER VALUE Earnings are the source of cash flows to shareholders. Earnings (also called profits or net income) are the difference between the revenues to the firm and the costs of production. The costs of production include all labor and material costs, interest on debt, taxes, and allowances for depreciation.

pages: 340 words: 100,151

Secrets of Sand Hill Road: Venture Capital and How to Get It
by Scott Kupor
Published 3 Jun 2019

To satisfy Revlon duties, boards should: (1) run a broad outreach to multiple potential acquirers, with the help of bankers where possible; (2) consider other possible paths forward (e.g., is there a financing alternative whereby the company remains a stand-alone entity to maximizes shareholder value?); (3) consider incorporating a go-shop provision into an offer they receive from an acquirer to permit other competing bids to surface; and (4) document a well-vetted process that shows the board considered all available possibilities to maximize shareholder value. The board is not obligated in all cases to take the highest price; it just has to reasonably maximize shareholder value. So, for example, the board can take a slightly lower offer if it feels that the offer is more likely to close or the form of consideration (stock versus cash) is more favorable.

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However, with companies staying private demonstrably longer these days, the work required to build the business into a successful venture has really just begun. Unfortunately, we often see cases where a cofounder leaves—whether voluntarily or otherwise—once she has fully vested, leaving the other cofounder to bear the brunt of managing the business and building long-term shareholder value for many years to come. And, although the remaining cofounder may receive incremental equity grants from the board over time for her continued service, the likely financial value of her new equity pales in comparison to the value of the fully vested equity the former cofounder has realized. The conversation with the remaining cofounder is the same each time: “I’m here every day working hard trying to build long-term equity value for my employees and investors while Joan [names have been changed to protect the innocent] is living the celebrity party scene.”

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This is a simple thing to implement as of the founding of the company, but an often overlooked one. Ultimately, this is about making sure that founder equity serves its purpose—to create long-term incentives—and that the economic rewards of success accrue to those who are remaining with the company over the long term to help increase shareholder value. And incentives are perfectly aligned here between you (as the remaining cofounder) and your VCs: the company retains valuable stock to grant the remaining employees who are actually contributing to the growth of the business. Transfer Restrictions Imagine that your cofounder has not only left but is now sitting on hundreds of millions of dollars in vested stock and wants to sell the stock privately.

pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

In their 1932 book, The Modern Corporation and Private Property, Adolf Berle and Gardiner Means argued that companies were akin to feudal kingdoms run by “princes of industry” in their own, not the shareholder’s, interests. Investors seeking to control the activities of managers embraced shareholder value. This fitted the great expectation machine6—the needs of the pension funds, insurance companies, and professional investment managers who pooled and managed the savings and pension contributions of individuals. Investors want a simple mechanism to evaluate the companies they invest in. Disliking uncertainty, they prefer the financial world to be a predictable and highly ordered place. Shareholder value quickly became the preferred narrative and language of communication between companies, their managers, and investors.

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In investor presentations, Bernie Ebbers, CEO and later convicted criminal, would put up a chart of WorldCom’s rising share price and ask his audience: “Any questions?” In March 2009, Welch would change his mind, calling shareholder value “the dumbest idea in the world.”7 Dirty Tricks Higher shareholder value requires increasing earnings, reducing the amount of capital used by the business, or decreasing the cost of that capital. You can improve the real business. Business improvements are risky and very slow, akin to watching grass grow. Financial changes are easier, more predictable and, most important, quicker. Financial engineering replaced real engineering.

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(a consulting firm), Marakon Consulting (which evolved out of Wells Fargo’s Management Sciences Division) and Alcar (created by Professor Alfred Rappaport) spruiked shareholder value. Stern, a skilful self-promoter, wrote influential articles in The Wall Street Journal, a column in the Financial Times and, like Bill Gross, became a regular on Wall Street Week. The Stern Stewart pitch was pure Modigliani and Miller, arguing that companies’ share prices reflected ‘expected cash flow...above and beyond the anticipated investment requirement of the business.”20 Shareholder value required maximizing cash flow and returns above the company’s cost of capital. Stern Stewart published an annual Billboard Top 100 Chart that analyzed corporations’ EVA™—economic value added or estimate of economic profit.

pages: 218 words: 62,889

Sabotage: The Financial System's Nasty Business
by Anastasia Nesvetailova and Ronen Palan
Published 28 Jan 2020

Shareholders were not involved in the daily running of businesses, and had no chance to collude with workers. Shareholders were interested only in profits and cared not about the comfort of either the workforce or the managers. By introducing ‘shareholder value’ to American capitalism the liberals advocated a system that would be specifically oriented towards short-term profits. The shorter, the better; shareholder value imposed fierce competition in the marketplace. Competitive markets, the liberal believed, would force innovation and change. Shareholder value was positive. Profits were central. Greed was good. The argument quickly evolved into a disciplinary and political debate. Veblenians believed that Hayek and his disciples ignored a crucial point.

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Veblenians believed that Hayek and his disciples ignored a crucial point. Owners and shareholders did not innovate in any way, either in industry or in finance. Their mentality, their ‘habit of thought’, was that of sabotage. If liberals hoped that by introducing short-termism through shareholder value the shareholders would force reluctant managers and engineers to innovate, Veblenians thought the new liberal era would simply give licence to increased sabotage on a massive scale. For the liberals, deregulation was the battle cry against ‘red tape’ of bureaucracy which would stifle innovation. For Veblenians, ‘deregulation’ meant that the rules which were introduced as checks against the sabotaging tendencies in capitalism and the financial system were now removed.

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Alternatively, disequilibria are due to monopoly: ‘although excess profits are thus not a sure indication of monopoly, they are, if persisted, a probable indication’ (Bain, ‘ Profit Rate as a Measure of Monopoly Power’). 8. In other words, the state, a political entity that Hayekians tend to scorn. 9. K. Ward, Marketing Finance: Turning Marketing Strategies into Shareholder Value, 3rd edn, Routledge, 2011, p. 1. 10. Makowski and Ostroy, ‘Perfect Competition and the Creativity of the Market’, Journal of Economic Literature, vol. 39, 2001, pp. 479–535, https://doi.org/10.1257/jel.39.2.479. 11. L. Corey, The House of Morgan: A Social Biography of the Masters of Money, G.

pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties
by Paul Collier
Published 4 Dec 2018

Combining scientific innovation and size it developed huge prestige, and to work for it was a matter of pride. This was reflected in its mission statement: ‘we aim to be the finest chemical company in the world.’ Yet in the 1990s ICI changed its mission statement. It became: ‘we aim to maximise shareholder value.’ What had happened, and why did it matter? Firms are at the core of capitalism. The mass contempt in which capitalism is held – as greedy, selfish, corrupt – is largely due to their deteriorating behaviour. Economists have not helped. Milton Friedman, Nobel Laureate, vociferously propounded the nostrum – first articulated in 1970 in the New York Times – that the sole purpose of a firm is to make profits.

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Currently, when faced with the choice between ‘The primary purpose of business should be to make profit’ versus ‘Making a profit should be only one consideration among many’, the people who agree with Friedman are outnumbered three-to-one, a difference that is uniform across age groups and opinions about other matters.1 Who is right: Friedman or public opinion? A clue comes from what happened at ICI. Did its new Friedman-inspired mission statement motivate the company’s workforce to new heights? Has any worker for any company ever got up in the morning, thinking ‘today I’m going to maximize shareholder value’? That change in mission statement reflected a change in focus by the company’s board. Previously, it had tried to be a world-class chemical company, which implied paying attention to its workforce, its customers and its future. Now it tried to please shareholders with dividends. If you are under the age of forty you are unlikely to have heard of ICI.

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So, this policy indicated that the management really trusted their workers to work for the company, not against it. In other words, it depended upon workers having a sense of purpose that was well aligned with that of the company. I rather doubt that they were thinking ‘I’m trying to maximize shareholder value.’ This was utterly different from the approach to quality control used by GM, which was the conventional one of checking a sample of completed cars. Eventually, a new CEO understood the problem: the culture needed changing. Confrontation between GM management and the United Autoworkers Union would be superseded by mutual trust.

pages: 829 words: 187,394

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

BUYBACKS The great management consultant Peter Drucker once wrote that profits were not the rationale of business decisions, but rather the test of their efficacy.32 What Drucker meant was that if a company does its job well, delivering goods or services to customers at competitive prices, then profits should be forthcoming. From the early 1980s onwards, however, the corporation’s purpose was redefined. It was no longer about serving customers or even making profits. Instead, companies were told to pursue ‘shareholder value’, a management philosophy aimed at maximizing the market value of the company’s equity. In the name of ‘shareholder value’ senior executives were handed free stock options and other equity-linked incentives. Now they had skin in the game, management interests were said to be aligned with those of shareholders. Under President Roosevelt’s New Deal, it was made illegal for companies to acquire their shares in the market, this being regarded as a form of stock manipulation.

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Ma Bell’s net debt of around $250 billion (including off-balance-sheet liabilities) was equivalent to the combined sovereign debts of Thailand and Portugal.51 THE FINANCE CURSE A reasonable case could be made for maximizing shareholder value in the 1980s, when corporate America was dominated by cumbersome conglomerates. But after more than thirty years of corporate restructurings, shareholder value was little more than cover for financial engineering – the process of manufacturing profits on Wall Street rather than in the real world. As in Pierpont Morgan’s day, most bank loans were provided against existing collateral rather than used for productive investment.

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Under President Roosevelt’s New Deal, it was made illegal for companies to acquire their shares in the market, this being regarded as a form of stock manipulation. But this law was repealed in 1982, at around the date when interest rates embarked on their multi-decade decline. Under the mantra of shareholder value, managements were encouraged to replace ‘expensive’ equity with ‘cheap’ debt. As long as the cost of borrowing was low enough, executives could boost their company’s earnings by repurchasing their shares with debt (see box, p. 165). Since companies with robust earnings growth performed well in the stock market, senior executives earned windfall gains from this simple feat of financial engineering.

pages: 486 words: 150,849

Evil Geniuses: The Unmaking of America: A Recent History
by Kurt Andersen
Published 14 Sep 2020

By the 1980s this approach had turned into a movement with a new name and mantra: shareholder value. Unlike Friedman’s contemptuous bah-humbuggery or Gekko’s Greed is good, it sounded neutral, uncontroversial, practically self-evident—like Law and Economics. Victory for the new dogma was fast and total. Back in 1981, the official scripture of the Business Roundtable, the big business politburo, still held that “corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices” and to “provide jobs, and build the economy.” The term shareholder value’s first apparent use in The New York Times came the following year.

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The term shareholder value’s first apparent use in The New York Times came the following year. Boom: according to an economist who specializes in U.S. business history, “no one was talking about ‘shareholder value’ ” in 1984, but then boom, by 1986, “everyone was talking about it.” In the 1990s the Business Roundtable doctrine was amended accordingly, professing the new faith that the point of a business enterprise “is to generate economic returns to its owners,” period, by being “focused on shareholder value.” By then a more pointed and accurate term had been coined for the new stock-price monomania: shareholder supremacy. The most obvious way to make corporate executives obsess more over their stock price was to start paying them in shares of company stock instead of cash.

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Some Key Changes in the 1980s Good for the Financial Industry Stock prices almost triple (before almost quadrupling again during the 1990s). The long-standing federal prohibition on companies buying their own stock, meant to prevent share price manipulation, is repealed. The new “shareholder value” movement’s redefinition of capitalism makes a company’s current stock price essentially the only relevant measure of corporate performance. The share of all stocks owned by a few big institutional investors triples (on its way to doubling again in the 1990s). Increasingly abstract and untried and unregulated financial bets on other financial bets, derivatives, become normalized and start becoming economically significant.

pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future
by Mervyn King and John Kay
Published 5 Mar 2020

As students and academics we pursued the traditional approach of trying to understand economic behaviour through the assumption that households, businesses, and indeed governments take actions in order to optimise outcomes. We learnt to approach economic problems by asking what rational individuals were maximising. Businesses were maximising shareholder value, policy-makers were trying to maximise social welfare, and households were maximising their happiness or ‘utility’. And if businesses were not maximising shareholder value, we inferred that they must be maximising something else – their growth, or the remuneration of their senior executives. The limits on their ability to optimise were represented by constraints: the relationship between inputs and outputs in the case of businesses, the feasibility of different policies in the case of governments, and budget constraints in the case of households.

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This was not because they were stupid, although sometimes they were, nor because they were irrational, although sometimes they were. It was because an injunction to maximise shareholder value, or social welfare, or household utility, is not a coherent guide to action. Business people, policy-makers and families could not even imagine having the information needed to determine the actions that would maximise shareholder value, social welfare or household utility. Or to know whether they had succeeded in doing so after the event. Honest and capable executives and politicians, of which there are many, try instead to make incremental decisions which they think will improve their business, or make the world a better place.

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They list possible courses of action, define the consequences of the various alternatives, and evaluate these consequences. Then they select the best available option, if necessary anticipating how others will react to their choices. People make plans for consumption across their lifetime, from education, through child rearing, through retirement. Corporations select strategies to maximise shareholder value. Governments choose policies to maximise social welfare. A moment’s introspection is enough to tell us that they don’t. They could not conceivably have the information required to do so. They do not know all the available options, and they are uncertain what the consequences of them will be.

pages: 261 words: 86,905

How to Speak Money: What the Money People Say--And What It Really Means
by John Lanchester
Published 5 Oct 2014

Some of the people who get points for being publicly worried about the financial system in the run-up to the credit crunch now have shadow banking at the top of their list of concerns. shareholder value Described as “the dumbest idea in the world” by one of the men who not long ago was seen as its most formidable exponent, Jack Welch, former CEO of GE (which used to be General Electric, until the law of shareholder value forced the company into other lines of business). It is the belief that—to quote an influential 1970 article expounding it by Milton Friedman—“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business,” in other words of the shareholders.71 The employees’ sole responsibility is to make as much money for the employers, the shareholders, as possible.

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It is the belief that—to quote an influential 1970 article expounding it by Milton Friedman—“In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business,” in other words of the shareholders.71 The employees’ sole responsibility is to make as much money for the employers, the shareholders, as possible. The idea is to make money irrespective of all considerations of social responsibility and wider context. In the theory of shareholder value, the corporation is a legal fiction, getting in the way of the responsibility to make money for the owners. The theory of shareholder value has failed even on its own terms, because since it became popular in the late sixties the rate of return on assets and on invested capital has fallen by 75 percent. A countervailing idea of corporations is that they have a life and a character of their own and that the best of them make money by serving customers; customers should come first, rather than shareholders; this idea has gained force as companies that have followed it, such as Apple and Amazon, have had success.

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Its glory comes at the cost of the desolation it causes. The City of London is a robber baron’s castle. The move away from neoliberalism is likely to involve higher rates of tax at the top end, dramatically increased education spending, and perhaps a rethinking of some of the ways in which capitalism can be inflected away from shareholder value towards models that include owners, managers, workers, and the surrounding community—a model that has been successful in, for instance, Germany. The provision of employment and training for apprentices is an explicit part of this. There will need to be a sharp increase in levels of social housing.

pages: 309 words: 81,975

Brave New Work: Are You Ready to Reinvent Your Organization?
by Aaron Dignan
Published 1 Feb 2019

At the same time, the cost to humanity and the environment has been profound. Unchecked growth has created the conditions for a climate crisis that is unfolding in real time. This singular focus has also led to rampant inequality and a level of worker engagement that is pathetic at best. A mission statement that places shareholder value as the definition rather than the result of success is uninspiring. Jim Barksdale, former CEO of Netscape, once quipped, “Saying that the purpose of a company is to make money is like saying that your purpose in life is to breathe.” Instead we can elevate purpose above all. Given that we spend so much of our lives at work, wouldn’t it be nice if that work were worthwhile?

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In fact, the socially conscious and purpose-driven companies featured by professor and author Raj Sisodia in Firms of Endearment have outperformed the S&P 500 by a staggering 14x over a period of fifteen years, ten of which were after the publication of the book. A great purpose is aspirational, but it’s also a constraint. It focuses our energy and attention. It places a boundary around our efforts by saying, Here is where we will build our dream. Too mundane (e.g., shareholder value) and we lack meaning. Too vague (e.g., change the world) and we lack focus. Too concrete (e.g., a computer on every desk) and we can find ourselves rudderless after the moment of victory. Done well, purpose unites us, orients us, and helps us make decisions as we go. Thought Starters Fractal Purpose.

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While we often think of this as the job of the CEO, these counterintuitive insights—unpopular by definition—are often hiding in the organization and waiting to be discovered. What’s more, many organizations forget how potent the connection between purpose and strategy really is. If you don’t have a compelling vision—a dent in the universe beyond shareholder value—your strategies will fall flat. Because how can we win if we don’t know what winning looks like? Thought Starters Wild Swings and Sure Things. His politics and cantankerous demeanor aside, Nassim Nicholas Taleb introduced an extremely valuable concept in his book The Black Swan called the barbell strategy.

pages: 48 words: 12,437

Smarter Than Us: The Rise of Machine Intelligence
by Stuart Armstrong
Published 1 Feb 2014

But these overseers, who haven’t been following the intricacies of the algorithm’s decision process and who don’t have hands-on experience of the situation, are often at a complete loss as to what to do—and the plane or the stock market crashes.1 Finally, without a precise description of what counts as the AI’s “controller,” the AI will quickly come to see its own controller as just another obstacle it must manipulate in order to achieve its goals. (This is particularly the case for socially skilled AIs.) Consider an AI that is tasked with enhancing shareholder value for a company, but whose every decision must be ratified by the (human) CEO. The AI naturally believes that its own plans are the most effective way of increasing the value of the company. (If it didn’t believe that, it would search for other plans.) Therefore, from its perspective, shareholder value is enhanced by the CEO agreeing to whatever the AI wants to do. Thus it will be compelled, by its own programming, to present its plans in such a way as to ensure maximum likelihood of CEO agreement.

pages: 716 words: 192,143

The Enlightened Capitalists
by James O'Toole
Published 29 Dec 2018

When that occurs, investor demand for short-term profit increases, and the sustainability of virtuous practices becomes imperiled. Recently deceased law professor Lynn Stout argued that the perceived need to maximize shareholder value drives many directors and executives—often unwillingly and against their better judgment—to focus almost exclusively on increasing profits in order to raise stock prices: “In the quest to ‘unlock shareholder value’ they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance and research and development; delay replacing outworn, outmoded and unsafe equipment; shower CEOs with stock options and expensive pay packages to ‘incentivize’ them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency.”11 The problem does not arise simply from pressures by investors in public stock exchanges—as we saw, shares of Robert Owen’s and William Lever’s companies were not publicly traded; nonetheless, they came into conflict, respectively, with their nonmanaging partners and outside investors.

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The enlightened capitalists were, as we shall see, practical idealists, who sought to create and maintain a delicate balance between profit and virtue. But practical idealism sounds oxymoronic to the ears of many business leaders today—graduates of business schools where they were instructed in “the primacy of shareholder value,” and readers of business publications reporting the fates of underperforming executives at the hands of shareholder activists. Questions, and More Questions, Business Leaders Need to Ask IN LIGHT OF THE powerful arguments offered in opposition to socially enlightened business practices, it is therefore legitimate for executives to ask why businesses should engage in activities that possibly detract from producing the wealth on which social, technological, and material progress is predicated (and on which government taxation and the funding of nonprofit universities, cultural institutions, and community-based charities depend).

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In sum, Chappell could claim to have struck a good deal for all involved. So, what’s not to like about the sale? To begin, Chappell, like Anita Roddick, lost credibility with many enlightened businesspeople who, rightly or wrongly, believe that virtuous practices are inherently incompatible with the central tenet of corporate capitalism: maximizing shareholder value. To achieve that goal, skeptics argue, all giant corporations are forced to standardize their organizational policies, systems, and structures to realize the efficiencies needed to justify the cost of the acquisitions they make. Thus it is merely a matter of time before Colgate has a bad quarter, and its leaders then feel compelled to “make some efficiencies” at their high-operating-cost subsidiary in Kennebunkport.

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The End of the Free Market: Who Wins the War Between States and Corporations?
by Ian Bremmer
Published 12 May 2010

articleID=2069&AspxAutoDetectCookieSupport=1. 2 The phrase “rise of the rest” was popularized by Fareed Zakaria in The Post-American World (New York: Norton, 2008). 3 Karl-Heinz Büchemann, “The ‘Dumbest Idea in the World’: Jack Welch, the Figurehead of Shareholder Value, Disowns His Doctrine,” Atlantic Times, Apr. 2009, http://www.atlantic-times.com/archive_detail.php?recordID=1716. 4 Organisation for Economic Co-operation and Development, Principles of Corporate Governance, May 1999. 5 Welch rejected the approach in an interview with the Financial Times, Mar. 12, 2009: “Shareholder value is a result, not a strategy.” 6 President Hoover was petitioned by more than a thousand leading U.S. economists of the time not to sign the Smoot-Hawley Act.

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But when the state fails to properly regulate market activity, it allows for a system in which players have every incentive to value cleverness more than prudence, short-term gains over longer-term investment. During the twenty-five-year period before the market meltdown of 2008, the conventional wisdom in corporate management theory favored an approach that privileged “shareholder value,” a concept widely associated with former General Electric CEO Jack Welch, who was promoting the idea in speeches as early as 1981.3 The assumption was that since company shares are bought and sold in a marketplace, shareholders will collectively allocate a company’s resources more efficiently and intelligently than its management can.

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But when financial markets spiraled toward crisis in 2008, it became clear that the short-term thinking of the few had inflicted enormous damage on the many—including victims of the broader economic meltdown, the crisis’s “collateral damage.” By early 2009, even Jack Welch was denouncing the concept of shareholder value as “the dumbest idea in the world.”5 This is just one example of the sort of failure of imagination that sent markets into free fall in 2008. Reckless borrowing and lending, ill-conceived risk taking, poor risk management, and many other human failings played crucial roles, but the common denominator in all these mistakes is a lack of intelligent government oversight of all this activity.

pages: 244 words: 66,977

Subscribed: Why the Subscription Model Will Be Your Company's Future - and What to Do About It
by Tien Tzuo and Gabe Weisert
Published 4 Jun 2018

Because it rode the shift to become a successful SaaS company with its “Commercial Cloud” business nearing its fiscal 2018 goal of a $20 billion annualized revenue run rate and its Office 365 Commercial business beating out its traditional licensing business in revenue generation. There are countless examples of software companies that have successfully made the shift to subscriptions and subsequently driven higher valuations and more shareholder value: IBM, Symantec, Sage, HP Enterprise, Qlik. Another big reason? IT buyers prefer opex to capex. Historically software companies have preferred capital expenditures (capex) for technology investments, as this afforded them the ability to take advantage of amortization and depreciation of the capital investments over a period of time.

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A little over a year later, that number dropped to $288 million. In the same period, earnings swung from a $17.4 million profit to a loss of $28.5 million. But as I write, PTC’s stock is up 135 percent over less than two years, from a low of $28 in February 2016. In less than two years it has added more than $4 billion in shareholder value. Just a few years ago, PTC found itself in a similar position to where Adobe was in 2011—chugging along, like the rest of the traditional software sector, at low-single-digit growth. PTC had to begin every financial year at zero—revenue had to be clawed together one deal at a time, only to vanish again in twelve months.

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They could justify ROI to their bosses (“This is what I used, so this is what I spent”), which is usually a much more difficult exercise with million-dollar project spend. There was way less bureaucracy and no painful IT integrations involved. So PTC announced a broad, systemic shift from perpetual licenses to cloud-based subscriptions, and it also confidently predicted that this shift would rekindle growth, expand margins, and maximize long-term shareholder value. It wound up going three for three. In October 2015, at the start of the journey, PTC told investors and analysts that in five years (FY2021) it was aiming for $1.6 billion in revenue, 10 percent revenue growth, an operating margin in the low thirties, and 70 percent of bookings coming from subscriptions.

pages: 215 words: 69,370

Still Broke: Walmart's Remarkable Transformation and the Limits of Socially Conscious Capitalism
by Rick Wartzman
Published 15 Nov 2022

Having latched on to the theories of the University of Chicago’s Milton Friedman, the University of Rochester’s Michael Jensen, and other academics, they contended that a company’s singular focus should be on boosting shareholder value. Investors had been emboldened, in part, by the sense that if any corporate stakeholder had been shortchanged during the 1970s and early ’80s, it was the shareholder. The Dow Jones Industrial Average had reached 1,000 in 1972—and, buffeted by recession and mediocre corporate performance in the face of intensifying global competition, it wouldn’t hit that mark again until 1982. “Shareholders deserved better,” said Steven Pearlstein, a journalist and professor of public affairs. “And boy, did they get their revenge.” Maximizing shareholder value was suddenly the dogma of business.

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Of course, putting shareholders first has never been an all-or-nothing proposition. No company would be around very long if it totally neglected its customers and employees. Rather, it’s a matter of priority. When there are trade-offs in business, as there inevitably are, the pursuit of profit and shareholder value almost always wins out—in many cases, by restraining wages or cutting labor costs in some other way. This has had the effect over the past four decades of redistributing income from workers to shareholders. (Some argue that workers are shareholders because more than half of US households have some investment in the stock market.

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The only real investors are those at the top, with more than 80 percent of the stock market’s value held by the richest 10 percent of Americans. Most people rely on a paycheck, not a dividend check, to live.) Despite many a CEO plumping for stakeholder capitalism over the past several years, shareholder primacy hangs on stubbornly. Not that we should expect anything else. Those who don’t make maximizing shareholder value their No. 1 goal may well find themselves in Wall Street’s bad graces—and soon out of a job. At the same time, more than 80 percent of CEO compensation these days comes in the form of equity, a key reason for the explosion in executive pay since the 1980s. When CEOs contemplate how much the company’s shareholders should be rewarded, they don’t have to look very far; to paraphrase Pogo, they are us.

pages: 1,544 words: 391,691

Corporate Finance: Theory and Practice
by Pierre Vernimmen , Pascal Quiry , Maurizio Dallocchio , Yann le Fur and Antonio Salvi
Published 16 Oct 2017

It measures the relative expense of a share. 5 Before goodwill accounting. 6 To simplify the discount calculation, we assume that the planned investments will generate a return to infinity. Bibliography For a general overview of value creation indicators: Boston Consulting Group, Shareholder Value Metrics, Shareholder Value Management, Boston Consulting Group, 1996. T. Copeland, What do practitioners want?, Journal of Applied Finance, 12(1), 5–11, Spring/Summer 2002. T. Copeland, T. Koller, J. Murrin, Valuation, 3rd edn, John Wiley & Sons, Inc., 2000. A. Damodaran, Value creation and enhancement: Back to the future, Contemporary Finance Digest, 2, 5–51, Winter 1998.

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A look at groups that have created sustainable value for their shareholders, frequently over long periods, shows that these same companies are at the forefront of innovation, constantly creating new markets, meeting new needs, hiring and training employees and inspiring loyalty and strong customer relationships. Just a few examples are L’Oréal, Johnson & Johnson, Singapore Airlines, Apple and BMW. Cost-cutting strategies can only be temporary and they cannot durably create shareholder value. Cost-cutting only works in the short term and only if it gives rise to a strategy of profitable growth. Shareholders entrust their money to managers whose task is to multiply it. Financial directors must operate within the framework of a given corporate mission and with the shareholders’ best interests in mind.

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Damodaran, Value creation and enhancement: Back to the future, Contemporary Finance Digest, 2, 5–51, Winter 1998. A. Damodaran, Corporate Finance: Theory and Practice, 2nd edn, John Wiley & Sons, Inc., 2001. R. Dobbs, T. Koller, Measuring long-term performance, The McKinsey Quarterly, special edition: Value and Performance, 17–27, 2005. P. Fernandez, J. Aguirreamalloa, L. Corres, Shareholder value creators in the S&P 500: 1991–2010, Working Paper IESE, February 2011. M. Friedman, The social responsibility of business is to increase its profits, New York Times Magazine, September 13, 1970. B. Madden, CFROI: A Total System Approach to Valuing a Firm, Butterworth-Heinemann, 1998. For more on EVA and economic profit: R.

pages: 435 words: 127,403

Panderer to Power
by Frederick Sheehan
Published 21 Oct 2009

Morgan.35 The comparison was taken to heart: the Harvard Business School class of 1985 included 65 members who were prosecuted for securities violations.36 Some of the corporate restructuring was productive, although much was driven by the call to “align management incentives with shareholder value.” To boost shareholder value—the stock price—every quarter, financial channels combined with clever accounting were necessary. The balance sheet expanded, often through the allure of debt and buying back equity. In 1985, Franco Modigliani won the Nobel Prize in economics. The Modigliani-Miller theorem holds that the value of a business does not decrease when its capital structure is geared toward debt (we are incorporating the efficient market fantasy dementia here.)

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Greenspan had been hired by Keating to persuade the Federal Home Loan Bank of San Francisco that Lincoln was in good shape. Greenspan succeeded even though Lincoln was one of Michael Milken’s top three junkbond customers among savings and loans (S&Ls).25 The rise of Milken—and of Greenspan—was attuned to the hectic financialization of America in the 1980s. “Maximizing shareholder value” turned out to be a veil for loading corporate balance sheets with debt, a much cheaper and faster route to growth than from retained profits. The market would not have accommodated such indiscretions 30 years earlier. The capital foundations were growing unstable. Greenspan could (and would) salute the economy’s flexibility.

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Investment is the key to enhanced productivity and higher living standards.”26 23 Investment Company Institute, “Mutual Fund Assets and Flows in 2000,” Perspective, February 2001. 24 Levin, “General Motors to Cut 70,000 Jobs; 21 Plants to Shut.” 25 U.S. Census Bureau, Current Population Reports, Consumer Income, p. 41, Table A-3. That depends on where you sit. “Shareholder value” was paying off. Corporate profits fell 21 percent during 1991, a year in which the S&P 500 rose 31 percent.27 The winnings were rising to the top. The CEOs of the largest 100 companies in America received an average of $2.63 million from grants and options in 1991 when their companies were losing money as if it was 1932.28 In 1976, a CEO had been paid 36 times the average worker’s salary.

pages: 261 words: 103,244

Economists and the Powerful
by Norbert Haring , Norbert H. Ring and Niall Douglas
Published 30 Sep 2012

A trading rule according to which an investor shorts the company stock if the CEO buys a very large or costly estate and buys the company stock if the CEO buys a more normally sized estates (for CEOs, at least) yielded a return of 40.8 percent after three years (shorting a stock means selling it, without owning it, in order to profit from price declines). What Is Performance, Anyway? Shareholder Value as the Benchmark of Everything On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… Your main constituencies are your employees, your customers and your products. —Jack Welch, 2009 128 ECONOMISTS AND THE POWERFUL An economist who believes in the rationality and farsightedness of financial markets will make no distinction between short-term rises in stock prices and long-run increases in company value.

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Analysts who had given favorable assessments of the company were allowed to ask their questions earlier than those who had given unfavorable ones. THE POWER OF THE CORPORATE ELITE 131 Paying Well for Lies, Gambles and Creative Accounting Top executives will routinely and inevitably possess information not available to investors. In these situations, changes in short run share prices will not imply a similar change in long run shareholder value. —Michael Jensen and Kevin Murphy, 2004 The large amounts of stocks and stock options that top managers get, ostensibly to align their interests with those of shareholders, create a massive insider trading problem. Top management has a huge information advantage over outside shareholders. At the same time, they have a large amount of stock and stock options to unload and trade.

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Coughlin, Peter. 1992. Probabilistic Voting Theory. Cambridge, MA: Cambridge University Press. Cramer, James J. 2002. Confessions of a Street Addict. New York: Simon and Schuster. Cuñat, Vincente, Mireia Gine and Maria Guadalupe. 2010. “The Vote is Cast: The Effect of Corporate Governance on Shareholder Value.” NBER Working Paper 16574. Curasi, Carolyn F. 1995. “Male Senior Citizens and their Shopping Preferences.” Journal of Consumer Marketing 12: 123–133. Das, Jishnu and Qui-Toan Do. 2009. “U.S. and Them: The Geography of Academic Research.” World Bank Policy Research Paper 5152. Datta, A. 2003.

pages: 249 words: 73,731

Car Guys vs. Bean Counters: The Battle for the Soul of American Business
by Bob Lutz
Published 31 May 2011

, “protecting our environment” (ditto the goal conflict), “treating our people as our most valuable resource” (so, no firings, layoffs, demotions, or early retirement? No salary cuts in hard times?), and, of course, the perennial, all-time sine qua non: “create shareholder value.” That one is almost guaranteed to drive bad behavior on the part of a significant minority. If “shareholder value” is as important as “great product,” why not squeeze a tiny bit of goodness out of the vehicles, reduce cost by a few hundred dollars, improve the margins (before the customers catch on), and have a blowout quarterly result that drives the stock up?

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Strongly Held Beliefs 1. The best corporate culture is the one that produces, over time, the best results for shareholders. Happy, contented employees, and an environment where nobody argues or disagrees, and everyone compromises because the other person has goals, is usually not the culture that produces great shareholder value. A performance-driven culture is often a difficult place to work, and it certainly isn’t “democratic.” Democracy and excessive consensus-building slow the process and result in lowest-common-denominator decisions. As Larry Bossidy, former CEO of Allied Signal, so aptly said, “Tension and conflict are necessary ingredients of a successful organization.” 2.

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But does the autocrat, no matter how gifted, create sustainable success? Or does his style drive away other, capable leaders who would form a leadership team after the great man’s departure? Time will tell. But, like him or not (and I would personally prefer not to work for Dr. Piëch), reputation, market share, profitability, and shareholder value all increased dramatically under the my-way-or-the-highway style of the good doctor. The future is another matter, but if the purpose of leadership is to drive results, chalk up one major victory for the supremely skilled autocrat. Contrast this to the benevolent, thoughtful, sharing, “respect other people’s emotional equity” approach that so long characterized GM.

pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

First, your share represents ownership in a business enterprise, including a vote in how it is managed. If the enterprise increases in value over time for any The Financial Market Made Simple reason, you get to share in that increase. That is why business enterprises ought to be and mostly are managed to maximize shareholder value. The conventional measure of the shareholder value created or destroyed by an enterprise is called market capitalization or market cap. This is simply the market price of a share multiplied by all the shares of the company in the market, in finance-speak ‘‘outstanding.’’ However, you are also buying a claim on the current and future earnings of the enterprise.

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The big idea was something called risk adjusted return on capital or RAROC. This was basically a way of measuring what every dollar of capital used by a bank to support its businesses returned to the shareholders after adjusting for risk, that is, the probable losses. Other tools and concepts like shareholder value added or SVA also got traction. In theory, if a bank took capital out of a business with low-risk adjusted returns and put it into businesses with high-risk adjusted returns, its overall return on shareholder funds should be higher. So would its position on the banking food chain. It seemed like a good idea at the time.

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See Stocks silver, xv, xvi, 8, 34, 83, 95 197 198 Index Sixteenth Amendment (to US constitution), 181 Smith, Adam, 179–180 Social Security, 23, 157 Socialism, 124–126, 182–183, 188–189 South Sea Bubble, 137 sovereign immunity, 151 sovereign lending, 151–152 speculation, 53, 109, 132, 138 Spitzer, Eliot, 138 stimulus and crisis management in US, Japan, 114, 169, 172 stocks, x–xi, xix, 3, 7, 13, 20, 22, 25, 27, 42, 49, 50–55, 60, 70–73, 80, 87, 137, 139, 142, 165, 167–168, 188; defined, 46; in Great Depression, 109–110; stock exchange, 88–89; stock prices, 47; versus bonds, 48; why stocks are risky, 47 Strong, Benjamin (‘‘Ben Strong’’), 105–106, 108–111 ‘‘structured finance,’’ 60, 64–68, 72, 133, 175–176, 185 sub prime, 55, 63–64, 176, 185 SVA (Shareholder Value Added), 71 Sweden banking crisis, 166 TARP (Troubled Asset Relief Program), 170 technology in banking and finance, xviii, 11, 40, 61–62, 70, 100, 117, 184 Term Loans, defined, 38–39; history, 143, 146 Thatcher, Margaret, 182, 184, 188 Thrift. See S&L ‘‘Too Big To Fail’’ doctrine, 159, 174 ‘‘Toxic Assets,’’ 72 Uniform Commercial Code, 38 U.S.

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The (Honest) Truth About Dishonesty: How We Lie to Everyone, Especially Ourselves
by Dan Ariely
Published 27 Jun 2012

* The smart thing would have been to lead the students through the oath at the start of every lecture, and maybe this is what I will do next time. * I suspect that companies that adapt the ideology of maximizing shareholder value above all else can use this motto to justify a broad range of misbehaviors, from financial to legal to environmental cheating. The fact that the compensation of the executives is linked to the stock price probably only increases their commitment to “shareholder value.” * Another fuzzy rule is the quaint-sounding “principle of prudence,” according to which accountants should not make things appear rosier than they actually are

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In a relatively short time, it is clear to many other bankers that Bob isn’t the only person to fudge some numbers. Moreover, they consider him as part of their in-group. To them, fudging the numbers now becomes accepted behavior, at least within the realm of “staying competitive” and “maximizing shareholder value.”* Similarly, consider this scenario: one bank uses its government bailout money to pay out dividends to its shareholders (or maybe the bank just keeps the cash instead of lending it). Soon, the CEOs of other banks start viewing this as appropriate behavior. It is an easy process, a slippery slope.

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Kennedy Center for the Performing Arts, Washington, D.C., 6–7 Kirk, Ulrich, 75 Kreisler, Jeff, 13–14 Kubrick, Stanley, 150–51 Landis, Floyd, 155 Larez, Thomas, 152 law firms, overstating of billable hours in, 35–37 lawyers, conflicts of interest and, 93 Lay, Kenneth, 2 left brain, 164–65 Legend of Bagger Vance, The, 55–56 Less Stress, More Success (Jones), 136 Levav, Jonathan, 102 lobbyists, governmental, 77–78, 94 locks, as protection from mostly honest people, 38 Loewenstein, George, 89 Logic of Life, The (Harford), 3–4 long-term relationships with service providers, 228–31 Lord of the Rings, The (Tolkien), 223 loyalty, in illegal businesses, 138–39 Luce, Mary Frances, 229, 259–60 lying: acceptable rate of, 28–29 dressing above one’s station as, 120–21 to ourselves, 141–61; see also self-deception pathological, brain structure and, 168–70 publicly, capacity for self-deception and, 153–54 white lies and, 159–61 Madoff, Bernie, 173, 192 Maharabani, Eynav, 21, 24–26, 258 Marvel, William, 152 Marx, Groucho, 1 matrix task, 15–23 aggressive cheaters and, 239 cheating one step removed from money in (token condition), 33–34 with close supervision, 226–27 with collaborative element, 225–28 concerns about standing out and, 22–23 control and shredder conditions in, 17–18 cultural differences and, 240–43 ego depletion and, 106 fake products and, 125–26 honor codes and, 41–44 infectious nature of cheating and, 197–204 with moral reminders, 39–44, 46–47 self-paying condition in, 20, 21 sign-at-the-top vs. sign-at-the-bottom conditions in, 46–47 task in, 15–16 tax reporting and, 45–47 varying amount of money in, 18–20 varying probability of getting caught in, 20–22 Mazar, Nina, 15, 18, 31–32, 39, 45, 194, 261 McGwire, Mark, 156 McKenzie, Scott, 57, 263 Mead, Nicole, 104, 261 medical device reps, 80 medical schools, pharmaceutical companies’ influence in, 82 medicine, conflicts of interest in, 71–74, 78–82, 92–94 see also pharma reps memento mori, 247 Middle Tennessee State University, 44–45 MIT: Charm School at, 153 honor code study at, 41–42, 43 matrix task study at, 15–21 money: directly stealing, 32–33 distance between our actions and, 34–37 monitoring or watching, as disincentive to cheating, 223–25, 227–28, 234–35 Montague, Read, 75 Moore, Don, 89 moral considerations, 4, 13, 14 amount of cheating and, 23, 27 cognitive flexibility and, 27–28, 186–87, 242 moral reminders, 39–52, 238, 248, 249–50 decline in effectiveness of, over time, 44n honor codes and, 41–45 infectious nature of cheating and, 203–4 signing forms at top and, 46–51 Ten Commandments and, 39–40, 41, 44, 250 mortgage-backed securities, 83–85 Mulligan, David, 60 mulligans, 60–61, 63–64 “Myth of the King of Gyges” (Plato), 223 Nettle, Daniel, 224 New York Times, 82, 150 Nisbett, Richard, 163–64 nonmonetary objects, dishonesty in presence of, 32–34 stealing Coca-Cola vs. money and, 32–33 token condition and, 33–34 Norton, Michael, 123, 127, 131, 145, 260–61 not-for-profits, 232n Odysseus, 98 Opus Dei, 250–52 Ozdenoren, Emre, 114–15 Palmer, Arnold, 62 parking tickets, 4 parole hearings, judges’ exhaustion and, 102–3 pharmaceutical companies, 93 impact in academia of, 82 pharma reps, 78–82 “dine-and-dash” strategy of, 79 doctors’ lectures and, 81 small gifts and free drug samples from, 78 Picasso, Pablo, 184 Pizarro, David, 250, 258 plagiarism, 213 cultural differences and, 242–43 Plato, 223 Pogue, David, 178–80 political action committees (PACs), 208–10 political organizations, 232n politicians, cheating among bankers vs., 243 postal service, U.S., 188 Prada bags: fake, 119, 122 real, given to author, 118–19, 122, 140 Predictably Irrational (Ariely), illegal downloads of, 137–39 preferences, creating logical-sounding reasons for, 163–64 prefrontal cortex, 169–70 Princeton University, honor code study at, 42–44 probabilistic discounting, 194 prostitutes, external signaling of, 120 prudence, principle of, 220n punishment, 13, 52 cost-benefit analysis and, 5, 13, 14 self-cleansing, in resetting rituals, 250–52 Rather, Dan, 152 rationalization of selfish desires: of Austen characters, 154–55 fake products and, 134–35 fudge factor and, 27–28, 53, 237 link between creativity and dishonesty and, 172 revenge and, 177–84 tax returns and, 27–28 see also self-justification reason vs. desire, 97–106 cognitive load and, 99–100 ego depletion and, 100–106 exhaustion and, 97–98 “Recollections of the Swindle Family” (Cary), 246 religion: reminders of moral obligations and, 45, 249–50; see also Ten Commandments resetting rituals and, 249, 250–52 reminders: of made-up achievements, 153–54, 238 see also moral reminders resetting rituals, 249, 250–54 to change views on stealing, 252–53 self-inflicted pain and, 249, 250–52 Truth and Reconciliation Commission in South Africa and, 253–54 résumés, fake credentials in, 135–36, 153 revenge, 177–84 annoyance at bad service and, 177–80 author’s tale of, during European travels, 180–84 Rich, Frank, 150 right brain, 164–65 Roberts, Gilbert, 224 Rogers, Will, 55, 57 Rome, ancient: memento mori reminders in, 247 sumptuary laws in, 120 Romeo and Juliet, 98 Rowley, Coleen, 215 Salant, Steve, 115 Salling, John, 152 Sarbanes-Oxley Act, 234 Schrödinger’s cat, 62–63 Schwartz, Janet, 80, 229, 259 Schweitzer, Maurice, 104, 260 scorekeeping, dishonesty in, 61–64 self-deception, 141–61 author’s personal experience of, 143–44 cheating on IQ-like tests and, 145–49, 151, 153–54, 156–57 “I knew it all along” feeling and, 149 Kubrick imitator and, 150–51 negative aspects of, 158–59 people with higher tendency for, 151 positive aspects of, 158 reducing tendency for, 156–57 reminders of made-up achievements and, 153–54, 238 repeating lies over and over and, 142–43 selfishness of Austen characters and, 154–55 in sports, 155–56 veterans’ false claims and, 152 white lies and, 159–61 self-flagellation, 250–52 self-image: amount of cheating and, 23, 27 fudge factor and, 27–29 self-indulgence, rational, 115–16 selfishness, see rationalization of selfish desires self-justification: creation of logical-sounding explanations and, 163–65 link between creativity and dishonesty and, 172 mulligans and, 60–61 repositioning golf ball and, 61 see also rationalization of selfish desires self-signaling, 122–26 basic idea of, 122 charitable acts and, 122–23 fake products and, 123–26, 135 what-the-hell effect and, 127–31 Sense and Sensibility (Austen), 154–55 service providers, long-term relationships with, 228–31 service records, exaggerated, 152–53 Sessions, Pete, 209 Sex and the City, 103–4 Shakespeare, William, 184 shareholder value, maximizing of, 208n Shiv, Baba, 99–100 shopping malls, susceptibility to temptation in, 113 Shu, Lisa, 45, 259 signing forms at top vs. bottom, 46–51 insurance claims and, 49–51 tax reporting and, 46–49 Silverman, Dan, 114–15 Simple Model of Rational Crime (SMORC), 4–6, 11–29, 53, 201, 238, 248 author’s alternative theory to, 27–28; see also fudge factor theory guest lecturer’s satirical presentation on, 11–14 life in hypothetical world based on, 5–6 matrix task and, 15–23 tested in real-life situations, 23–26 sincerity, principle of, 220n Skilling, Jeffrey, 2 social norms, infectious nature of cheating and, 195, 201–3, 205–7, 209 social utility, collaborative cheating and, 222–23 South Africa, Truth and Reconciliation Commission in, 253–54 split-brain patients, 164 sports, self-deception in, 155–56 stealing: Coca-Cola vs. money, 32–33 joke about, 31 resetting mechanisms and, 252–53 from workplace, 31, 33, 193 steroids, in sports, 155–56 storytelling: creation of logical-sounding explanations and, 163–65 reinterpreting information in self-serving way in, 187–88 self-deception and, 142–43 Stroop task, 109–12 opportunity to cheat on, 111–12 Suckers, Swindlers, and an Ambivalent State (Balleisen), 188 sumptuary laws, 120 sunshine policies, 88, 91–92 suspiciousness of others: fake products and, 131–34 self-deception and, 158–59 Tali (research assistant), 21, 24–26 Taliban, 152 Talmud, 45 Tang, Thomas, 44 tax returns, 45–49 IRS reaction to author’s findings on, 47–49 rationalization of exaggerated deductions in, 27–28 signing at top vs. bottom, 46–49 technological frontiers, potential for dishonesty and, 188 temptation, resisting of: cognitive load and, 99–100 dieting and, 98, 109, 112–13, 114–15 ego depletion and, 100–116 evenings as difficult time for, 102 physical exhaustion and, 97–98 removing oneself from tempting situations and, 108–11, 115–16 in shopping malls, 113 Ten Commandments, 39–40, 41, 44, 204, 250 This American Life, 6–7 Three Men in a Boat (to Say Nothing of the Dog) (Jerome), 28 Time, 215 token experiment, 33–34 Tolkien, J.

pages: 272 words: 76,154

How Boards Work: And How They Can Work Better in a Chaotic World
by Dambisa Moyo
Published 3 May 2021

If a company must be sold, the board should endeavor to secure a premium value and not sell it for scrap; the board should certainly avoid filing for bankruptcy. Leaving a good legacy is becoming harder, however, as the corporate board’s oversight role becomes ever more challenging and baseline notions about shareholder value and social responsibility shift with the changing times. Twenty-first-century companies are buffeted by unprecedented economic headwinds. Particularly after the onset of the coronavirus pandemic, the global economy is facing a deep and protracted recession, adding to already slowing long-term economic growth trends.

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A great deal of thought and consideration goes into each of these options, because a company’s shareholder base usually includes a range of investors with differing motivations, needs, and wants. For example, in 2016–2017 the dividend-to-payout ratio for US banks was more than 100 percent, and this placed pressure on boards and management teams across the banking sector to match the payouts of their competitors. Some shareholders value money today over investment for tomorrow. But picking one option over the other depends on a range of factors: Can the dividend be sustained? How do you manage the expectations of a shareholder buyback program? How much debt can you pay down? Inherent in the board’s responsibility is the understanding that all decisions should put the shareholders first.

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One reason that culture has been more frequently discussed in the boardroom is that it reflects a company’s level of integrity and is a central part of how the company establishes and maintains its reputation. As recent upheavals at Wells Fargo, WeWork, the Weinstein Company, and others have shown, culture directly affects profitability and shareholder value, and ultimately determines whether a company lives or dies. Headlines may give the impression that the cultural issues challenging corporations are purely the result of scandalous or illicit behavior on the part of individual managers or employees. However, other forms of culture—say, a lack of innovation or an overabundance of bureaucracy—can ossify and become equally damaging to the long-term prospects of the business.

pages: 439 words: 79,447

The Finance Book: Understand the Numbers Even if You're Not a Finance Professional
by Stuart Warner and Si Hussain
Published 20 Apr 2017

Principles require institutional investors to: Monitor their investments. Have a clear policy on voting (and disclose their voting activity). Be willing to act collectively with other investors where appropriate. Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value. Publicly disclose their policy on how they will discharge their stewardship responsibilities. Have a robust policy on managing conflicts of interest in relation to stewardship; this policy should be publicly disclosed. UK Corporate Governance Code – history and development Key committees in the development of the Code and their main purpose is summarised below: Committee/Report Purpose/Focus Cadbury (1992) Established the first Corporate Governance regime in the UK Greenbury (1995) Focus on directors’ remuneration Hampel (1998) Review and consolidation (Combined Code) Turnbull (1999) Internal controls Myners (2001) Institutional investors Higgs (2003) Role and effectiveness of non-executive directors Smith (2003) Focus on auditors Walker (2009) Banking industry Where to spot in company accounts Look in the annual report for ‘comply versus explain’ disclosures in a section typically headed ‘Governance’.

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Risk-spreading – diversification into new markets and products/services. Competitive – to stop a rival obtaining the target. However, the premium paid often far outweighs the synergistic benefits of an acquisition. Research by KPMG has shown that 70–80% of mergers and acquisitions fail to create shareholder value.1 Some argue that excessive premiums are paid for acquisitions to meet investor’s expectations of growth momentum, which cannot be achieved by organic growth alone. Asset-based valuations Assets and liabilities will be revalued to reflect their current worth. Additional assets and liabilities may also be identified as part of any valuation process.

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Performance graph The graph below shows a comparison of the total shareholder return for the Company’s shares for each of the last seven financial years against the total shareholder return for the companies comprised in the FTSE Mid 250 index (excluding Investment Trusts) and the FTSE 350 (excluding Investment Trusts). * * * 1 ‘World Class Transactions: Insights into creating shareholder value through mergers and acquisitions’, KPMG Transaction Services. 29 Equity finance ‘If companies are able to raise equity from the market, then their problems for financing incomplete projects will come to end. Investment cycle in the capital market can kick-start with the money of savers and investors.’

pages: 1,239 words: 163,625

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated
by Gautam Baid
Published 1 Jun 2020

On one hand, we have Valeant Pharmaceuticals, which buys lifesaving drugs for rare diseases from innovative companies but then resorts to predatory pricing. The financial metrics might appear attractive, but a parasitic relationship of extracting value from customers (rather than adding value to them) usually ends up destroying shareholder value at some point in the future. On the other, we have companies like Amazon, led by Jeff Bezos, who says, “We’ve done price elasticity studies, and the answer is always that we should raise prices. We don’t do that, because we believe—and we have to take this as an article of faith—that by keeping our prices very, very low, we earn trust with customers over time, and that that actually does maximize free cash flow over the long term [emphasis added].”3 Some companies are willing to look past maximizing short-run focused r and instead focus on maximizing long-term focused n to create maximum long-term stakeholder value and happy customers.

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How can we test for the absence of candor in an executive communication? Rittenhouse writes: When Rittenhouse Rankings analyzes a shareholder letter, we start reading with a red pencil or pen in hand and use it to underline clichés such as “employees are our greatest assets,” “our future is bright,” “advancing momentum,” and “we aim to create shareholder value.” This kind of meaningless jargon and platitudes diminishes our understanding of the business and our trust in the leadership. When we finish coding a communication, we look back at the pages. If we see more red than black ink on the pages, we put a company on probation. We dig further to examine the company’s accounting and its marketplace claims.

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It may need, however, to spin off a subsidiary to address antitrust concerns. Another reason why spinoffs do so well, as Greenblatt explains, is “because capitalism, with all its drawbacks, actually works.”7 Once a spinoff is complete, its management is freed from the bureaucracy of the parent and is empowered to make changes that will create shareholder value, because if management owns a significant portion of the spinoff’s stock, they will benefit directly. Greenblatt writes, “A strategy of investing in the shares of a spinoff or parent company should ordinarily result in a preselected portfolio of strongly shareholder-focused companies.” By proceeding with a spinoff, a management team makes a strong statement that it cares about shareholder returns.

pages: 408 words: 108,985

Rewriting the Rules of the European Economy: An Agenda for Growth and Shared Prosperity
by Joseph E. Stiglitz
Published 28 Jan 2020

Too many companies thrive off public investments in infrastructure, education, and technology, but are not willing to pay back society. The view that firms should simply maximize shareholder value is of recent origin, often dated to the influence of Milton Friedman and his right-wing ideology of the 1970s and early 1980s, a time when there was a shift to the right on both sides of the Atlantic. Friedman’s stance was ironic because at just the time he was arguing for shareholder capitalism, economic theorists were explaining why, in general, maximizing shareholder value would not lead to societal well-being.4 Only in simplistic economic models are public and private interests perfectly aligned.

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An unwarranted trust in private industry—and the belief that it could be relied on to be self-regulating and naturally competitive—became the political manifestation of Europe’s confidence in markets. Companies were left to grow larger and larger. Measures that might have promoted competition rather than consolidation fell out of favor. Moreover, corporate governance was often judged on whether it maximized shareholder value and not whether it benefited society as a whole. Most destructively, as subsequent events would show, European governments, regulators, and thinkers greenlighted (even celebrated) a financial services industry that grew more reckless with every passing year. In a culture that celebrated the free market, the money that bankers raked in simply confirmed that they were smarter than the rest and able to regulate their own behavior.

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CEO bonuses and starkly higher pay for executives in some sectors, notably in finance but elsewhere as well, have become a lightning rod for public criticism, and rightly so. While the claim is that these bonuses are necessary to incentivize executives, the evidence is that these payments do not even fulfill the stated goal of increasing shareholder value but generate enormous negative side effects. In banking, they encouraged excessive risk taking and short-termism; in the auto industry, they facilitated attempts to circumvent environmental regulations; in some international businesses, they enabled corruption and bribery. As long as CEOs and other high-level corporate executives have their compensation and benefits linked to stock prices, and particularly stock prices in the here and now, as many currently do, they will be tempted to pursue short-term gains and creative—destructive is a better word—accounting tricks, which are ephemeral sources of growth at best, over adding real long-term value to their companies.

pages: 382 words: 105,657

Flying Blind: The 737 MAX Tragedy and the Fall of Boeing
by Peter Robison
Published 29 Nov 2021

A month after taking the McDonnell Douglas job, despite the dire future prospects for the plane maker, Stonecipher authorized increasing shareholder dividends by 71 percent. He also used the company’s shrinking war chest to buy back 15 percent of the company’s stock. The message for investors was clear enough. “McDonnell Douglas Takes Actions to Enhance Shareholder Value,” the press release said. Buybacks of the sort Stonecipher had instigated were once considered market manipulation. They represent a technique in which a company uses its revenue to acquire its own shares on the open market, then cancels them. With fewer shares outstanding, the ones left are more valuable.

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“How do you avoid getting deeply engaged in the day-to-day activity, and ignoring those strategic things?” On March 21, 2001, Condit stunned the city where Bill Boeing built his first wooden float planes by saying he would move the headquarters to one of three cities: Chicago, Dallas–Fort Worth, or Denver. It would be “a new, leaner corporate center focused on shareholder value,” the statement said. The secret had been so tightly guarded that Boeing hadn’t even told Seattle’s mayor, Paul Schell. “John, why didn’t you call?” the mayor plaintively asked a high-ranking Condit lieutenant. Condit met the press at the Ronald Reagan Building of the International Trade Center in the other Washington—Washington, D.C.

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The white-columned hallway and wooden floors inlaid with oak and mahogany in the Office of the Chairman evoked a colonial gentleman’s estate. * * * — Stan Sorscher, the physicist and Speea official, quit Boeing soon after the strike ended to join the engineers’ union full time. He kept talking to analysts, trying to understand Boeing’s new lodestar of shareholder value. One asked him why Boeing needed so many engineers in coordination meetings (like the huge gatherings that had kept the 777 on track). “In my world,” the analyst said, “the next word after coordination is cost.” In a conversation with another Wall Streeter, as Sorscher argued against excessive cost cutting, the analyst quickly cut him off.

pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials)
by Benjamin Graham and Jason Zweig
Published 1 Jan 1949

Unfortunately, it recently has become all too common for companies to repurchase their stock when it is overpriced. There is no more cynical waste of a company’s cash—since the real purpose of that maneuver is to enable top executives to reap multimillion-dollar paydays by selling their own stock options in the name of “enhancing shareholder value.” A substantial amount of anecdotal evidence, in fact, suggests that managers who talk about “enhancing shareholder value” seldom do. In investing, as with life in general, ultimate victory usually goes to the doers, not to the talkers. Chapter 12 Things to Consider About Per-Share Earnings This chapter will begin with two pieces of advice to the investor that cannot avoid being contradictory in their implications.

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Meanwhile, to keep the exercise of earlier stock options from diluting its earnings per share, Oracle spent $5.3 billion—or 52% of its total revenues that year—to buy back 290.7 million shares of stock. Oracle issued the stock to insiders at an average price of $3.53 per share and repurchased it at an average price of $18.26. Sell low, buy high: Is this any way to “enhance” shareholder value?19 By 2002, Oracle’s stock had fallen to less than half its peak in 2000. Now that its shares were cheaper, did Oracle hasten to buy back more stock? Between June 1, 2001, and May 31, 2002, Oracle cut its repurchases to $2.8 billion, apparently because its executives and employees exercised fewer options that year.

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Electronic Data Systems electronics industry Elias, David Ellis, Charles ELTRA Corp. EMC Corp. emerging-market nations Emerson, Ralph Waldo Emerson Electric Co. Emery Air Freight Emhart Corp. employee-purchase plans employees: stock options for. See also managers/management endowment funds “enhancing shareholder value,” Enron Corp. enterprising investors. See aggressive investors EPS. See per-share earnings Erie Railroad ethics eToys Inc. Eversharp Co. exchange-traded index funds (ETFs) Exodus Communications, Inc., Expeditors International of Washington, Inc. expenses/costs: controlling ownership; and convertible issues and warrants; of doing business; of investment funds; of mutual funds; of options; and per-share earnings; of research; and stock selection for aggressive investors; and stock selection for defensive investors; of trading.

pages: 918 words: 257,605

The Age of Surveillance Capitalism
by Shoshana Zuboff
Published 15 Jan 2019

Inequality of wealth and rights was accepted and even celebrated as a necessary feature of a successful market system and as a force for progress.23 Hayek’s ideology provided the intellectual superstructure and legitimation for a new theory of the firm that became another crucial antecedent to the surveillance capitalist corporation: its structure, moral content, and relationship to society. The new conception was operationalized by economists Michael Jensen and William Meckling. Leaning heavily on Hayek’s work, the two scholars took an ax to the pro-social principles of the twentieth-century corporation, an ax that became known as the “shareholder value movement.” In 1976 Jensen and Meckling published a landmark article in which they reinterpreted the manager as a sort of parasite feeding off the host of ownership: unavoidable, perhaps, but nonetheless an obstacle to shareholder wealth. They boldly argued that structural disconnect between owners and managers “can result in the value of the firm being substantially lower than it otherwise could be.”24 If managers suboptimized the value of the firm to its owners in favor of their own preferences and comfort, it was only rational for them to do so.

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The disciplines imposed by the new market operations stripped capitalism down to its raw core, and by 1989 Jensen confidently proclaimed the “eclipse of the public corporation.”32 By the turn of the century, as the foundational mechanisms of surveillance capitalism were just beginning to take shape, “shareholder value maximization” was widely accepted as the “objective function” of the firm.33 These principles, culled from a once-extremist philosophy, were canonized as standard practice across commercial, financial, and legal domains.34 By 2000, US public corporations employed fewer than half as many Americans as they did in 1970.35 In 2009 there were only half as many public firms as in 1997.

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This logic for translating investment into revenue is highly adaptive and exceptionally lucrative as long as raw-material supplies are free and law is kept at bay. The rapid migration to surveillance revenues that is now underway recalls the late-twentieth-century shift from revenues derived from goods and services to revenues derived from mastering the speculative and shareholder-value-maximizing strategies of financial capitalism. Back then, every company was forced to obey the same commandments: shrink head count, offshore manufacturing and service facilities, reduce expenditures on product and service quality, diminish commitments to employees and consumers, and automate the customer interface, all radical cost-reduction strategies designed to support the firm’s share price, which was held hostage to an increasingly narrow and exclusionary view of the firm and its role in society.

pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded)
by Michael J. Mauboussin
Published 1 Jan 2006

It’s imperfect, but that’s what it’s all about.”7 Naturally, coming up with likely outcomes and appropriate probabilities is not an easy task. But the discipline of the process compels an investor to think through how various changes in expectations for value triggers—sales, costs, and investments—affect shareholder value, as well as the likelihood of various outcomes. Such an exercise also helps overcome the loss-aversion pitfall.8 The expected-value mindset is by no means limited to investing. The book, Bet with the Best, offers various strategies for pari-mutuel bettors. Steven Crist, CEO, editor, and publisher of the Daily Racing Form, shows the return on investment, including the track’s take, of a hypothetical race with four horses.

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Further, many of the areas where power laws exist intersect directly with the interests of investors. An appreciation of power laws may provide astute investors with a useful differential insight into the investment process. 36 The Pyramid of Numbers Firm Size, Growth Rates, and Valuation Growth is important because companies create shareholder value through profitable growth. Yet there is powerful evidence that once a company’s core business has matured, the pursuit of new platforms for growth entails daunting risk. Roughly one company in ten is able to sustain the kind of growth that translates into an above-average increase in shareholder returns over more than a few years. . . .

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I ran the numbers from 1980 through 2006 and found that for each holding period, the S&P 500 outperformed the large cap portfolio (see exhibit 36.4). Again, it’s hard for the largest companies to meaningfully outperform the market because they are such a large percentage of the market.10 Another way to look at expectations is to break down the percentage of shareholder value that comes from assets in place versus the value attributable to future investments. In early 2007, 30 percent of the value of the twenty largest U.S. companies was expected to come in the future (see exhibit 36.5).11 Economies and markets are certainly vibrant. But underneath the constant change lurk robust patterns of growth and firm-size distributions.

Financial Statement Analysis: A Practitioner's Guide
by Martin S. Fridson and Fernando Alvarez
Published 31 May 2011

Just as a swiftly changing environment necessitated extensive revisions and additions in the second and third editions, new concerns and challenges for users of financial statements have emerged during the first decade of the twenty-first century. A fundamental change reflected in the third edition was the shift of corporations’ executive compensation plans from a focus on reported earnings toward enhancing shareholder value. In theory, this new approach aligned the interests of management and shareholders, but the concept had a dark side. Chief executive officers who were under growing pressure to boost their corporations’ share prices could no longer increase their bonuses by goosing reported earnings through financial reporting tricks that were transparent to the stock market.

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It is not feasible, in the case of a chronically low rate-of-return company, to predict precisely the magnitude of a future reduction in accounting values. Indeed, there is no guarantee that a company will fully come to grips with its overstated net worth, especially on the first round. To estimate the expected order of magnitude of future write-offs, however, an analyst can adjust the shareholders’ value shown on the balance sheet to the rate of return typically being earned by comparable corporations. To illustrate, suppose Company Z's average net income over the past five years has been $24 million. With most of the company's modest earnings being paid out in dividends, shareholders’ equity has been stagnant at around $300 million.

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They also find that judgments based on the words used by chief executive officers and chief financial officers are more accurate than a model based on discretionary accruals. Relative to the answers given by truthful executives, the replies of deceptive executives contain more references to general knowledge (such as the phrase “you know”), fewer nonextreme positive emotions (“solid” or “respectable”), and fewer references to shareholder value and creating value. Furthermore, deceptive CEOs make fewer references to themselves and more to impersonal third parties, saying “the team” or “the company,” rather than “I.” They use more extreme positive emotions (“fantastic,” for example) and fewer extreme negative emotions, as well as fewer certainty and hesitation words.

pages: 396 words: 113,613

Chokepoint Capitalism
by Rebecca Giblin and Cory Doctorow
Published 26 Sep 2022

We have organized society around the principle that corporate executives’ sole duties are to their investors, which means that where there’s a chance to make an investor richer while making a worker or customer miserable, managers claim they are legally required to side with the investor (so long as the misery doesn’t backfire to the point where it harms the investor’s quarterly return). Combine the Borkian focus on consumer welfare with the neoliberal dogma that a company’s only purpose is to maximize shareholder value and you get a toxic combination that pits large corporations against their workers in pursuit of short-term investor value. Getting a fancy college degree doesn’t exempt you from fighting in the war of capital against labor. If your job can be done well enough and cheaply enough by someone else, it will be.

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Compliance costs might shave a few hundred million dollars off a big company’s quarterly earnings, but in exchange, it’ll get to watch as its less well-resourced rivals are killed off by the weight of regulation. And, critically, giants get a new barrier that makes it that much less attractive for anyone else to enter their market. In a world where short-term shareholder value is king, this is a much more attractive option than actually making great products in ways that respect workers and suppliers. This is one reason we ought to be careful about how we rein in excessive corporate power. If the tools we use make operating so expensive that only the biggest firms can afford to be in the game, we’ll end up baking chokepoints in.

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Historically, these came about because farmers were being ground down by powerful buyers in much the same way as creators are now. But there’s no floor on cultural commodities like streamed sound recordings or online video or self-published books: Spotify and YouTube and Netflix and Amazon get to decide what they pay. Given their excessive power and fixation on maximizing short-term shareholder value, it’s no surprise that turns out to be very little indeed. Minimum wages for creative labor won’t fix all of the market abuses that place downward pressure on prices. But by putting floors under the cost of creative work, they can reduce how much value gets creamed off by those who had nothing to do with its making.

pages: 184 words: 53,625

Future Perfect: The Case for Progress in a Networked Age
by Steven Johnson
Published 14 Jul 2012

Sisodia and his colleagues began investigating these positive deviants to figure out what made them so successful at winning over the hearts (and wallets) of their customers. It turned out that the companies shared a set of core values that distinguished them from most of their rivals. For starters, unlike most corporations, they did not consider their ultimate responsibility to be “maximizing shareholder value.” When management had to make key decisions, they didn’t focus exclusively on how those decisions would play on Wall Street. Instead, the companies adhered to a “stakeholder” model, whereby decisions had to reflect the varied interests and needs of multiple groups: customers, employees, managers, shareholders, and even the communities that surrounded the company’s stores or offices or factories.

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Yet despite those strategies, the stakeholder-driven firms not only managed to stay in business, but actually outperformed the market by an extraordinary margin. In the ten years leading up to 2006, the public stakeholder firms had generated a 1,026 percent return for their investors, compared with the S&P 500’s 122 percent return. By refusing to focus on maximizing shareholder value, they had created eight times more value for their shareholders. John Mackey has come to call the overall philosophy shared by these firms “conscious capitalism.” “If business leaders become more conscious of the fact that their business is not really a machine,” he writes, “but part of a complex, interdependent, and evolving system with multiple constituencies, they will see that profit is one of the most important purposes of the business, but not the sole purpose.

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Performance would be rewarded—not through individual raises, but through an increase in the overall budget of the school, which would then be passed down to all the teachers through bigger paychecks. Just as we saw with Race to the Top, that reward would be fronted by the state, but it would play the same role that increases in publicly held shares do in the private sector. The rising tide of shareholder value would lift all boats. That kind of incentive structure would encourage better teaching and better collaboration with other teachers. The school would be a peer network at its finest: a group of minds gathered together to tackle an important problem, where promising ideas were both rewarded and free to circulate through the network.

pages: 226 words: 58,341

The New Snobbery
by David Skelton
Published 28 Jun 2021

Plenty have done very well over the past few decades, but this success has been limited to small pools of ‘winners’, generally professionals based in big cities, and has utterly failed to spread across the whole of society. Most workers, communities and families have missed out on the benefits of a growing economy. GDP and wage growth has also been excessively concentrated in London and the south-east, deepening regional inequalities that continue to blight the economy. Economist Milton Friedman’s shareholder value theory continues to dominate in most companies. The theory holds that the primary responsibility of a company is to its shareholders, and the best way of meeting this responsibility is to maximise profit. But this has delivered a short-termist outlook and has detracted from longer-term investment.

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In 2018, the north-east saw only £0.8 billion worth of R&D investment, in contrast to £7 billion in the south-east. This lack of investment has a substantial knock-on impact to output and productivity in the economy as a whole. Even the Bank of England has expressed concern that a myopia based around shareholder value has created a culture of short-termism amongst UK companies, with only around a quarter of British businesses prioritising investment. Employers are also investing less in training. The Chartered Institute of Personnel and Development has found that, ‘despite the central importance of skills development in the workplace, there has been a substantial and longterm decline in the volume of employer training and investment in training in the UK … employers in the UK are training less and investing less in their workforce than they were twenty years ago’.4 The type and quality of training also seems to have decreased in that time.

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INDEX Adams, Gladstone 1 Alipoor, Javaad 1 Ant and Dec 1 Arts Council 1 Arts and Humanities Research Council 1 Ashcroft, Lord 1 associative mating 1 Atlas Shrugged (Rand) 1 Attlee, Clement 1, 2, 3 Bale, Tim 1 banking crisis (2008) 1 BBC coverage of EU referendum 1 diversity targets in 1 identity politics/wokeism in 1 middle-class dominance of 1 working-class representation in 1 Bevin, Ernest 1 Beyond the Red Wall (Mattinson) 1 Blair, Tony 1, 2, 3 Bloodworth, James 1, 2 Blue Labour 1 Bohonos, Jeremy 1 Bourdieu, Pierre 1, 2 Brahminisation of Social Democratic parties 1 Brecht, Bertolt 1 Brennan, Jason 1 British Library 1, 2 British Medical Journal 1 British Museum 1 British Social Attitudes Survey 1, 2 Brooks, David 1, 2, 3 Brown, Gordon 1, 2 Buerk, Michael 1 Burchill, Julie 1 Bush, Vannevar 1 Butler, Dawn 1 Cable, Vince 1 Cameron, David 1, 2, 3, 4 Carry On films 1 Cartoon Museum 1 Cass, Oren 1 Cedefop polls 1 Centre for Cities 1 Chamberlain, Joseph 1 Change UK 1 Channel 4 News 1 Chartered Institute of Personnel and Development 1 Churchill, Winston 1, 2 Class Ceiling, The (Friedman and Laurison) 1 Clegg, Nick 1 Clinton, Bill 1 community building 1 Conservative Party economic policies of 1 membership of 1 pro-worker politics 1 quango appointments 1 on social issues 1 values of 1 working-class support for 1, 2 corporate governance 1 Countryfile 1 Covid pandemic 1, 2, 3, 4, 5, 6 Cowley, Tim 1 Cruddas, Jon 1 cultural capital 1 culture and cultural capital 1 and ‘four lads’ meme 1 and identity politics/wokeism 1 middle-class domination of 1 as national unifier 1 pro-worker policies 1, 2 representation of working class 1, 2 working-class values in 1 Davie, Tim 1, 2, 3 Davis, Andrew 1 Deneen, Patrick 1 dignity of work 1 Disraeli, Benjamin 1, 2, 3 Durham University 1 economics and corporate governance 1 and Covid pandemic 1 decline of skilled work 1 and dignity of work 1 impact of changes on working class 1 industrial policies 1 inevitability of change 1 investment in workers 1 and meritocracy 1 pro-worker policies 1, 2, 3 revival of manufacturing 1 and shareholder value theory 1 and social mobility 1 wage stagnation 1, 2, 3, 4 Economist, The 1 education and access to professions 1 David Skelton’s experience of 1 and identity politics/wokeism 1 pro-worker policies 1, 2 reinforcement of class divide after 1 universities in 1, 2 and vocational/technical education 1, 2 white working-class children in 1 working class let down by 1, 2 Eliot, T.

pages: 382 words: 92,138

The Entrepreneurial State: Debunking Public vs. Private Sector Myths
by Mariana Mazzucato
Published 1 Jan 2011

Such a holiday has been estimated to reach $79 billion over the decade and there is no assurance that the repatriated profit would be utilized for further development of existing capabilities (Duhigg and Kocieniewski 2012). The pledge for a ‘repatriation tax holiday’ is even more appalling in light of Apple’s and other major corporations’ share repurchase programmes (Lazonick 2011). Given the pervasive attention paid to ‘maximizing shareholder value’ over all other concerns, nothing therefore guarantees that the repatriated cash will not end up in executives’ and shareholders’ pockets. While public policies on innovation should not just focus on areas like R&D tax credits, but rather on creating the market and technological opportunities that will increase private investment (neither Bill Gates nor Steve Jobs were sitting around thinking of the savings they could find from tax credits), it is also true that once such investments are made, business can make large savings (higher profits) with different types of tax credits and reductions.

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The logic here is that shareholders are the biggest risk takers since they only earn the returns that are left over once all the other economic actors are paid (the ‘residual’ if it exists, once workers and managers are paid their salaries, loans and other expenses are paid off, and so on). Hence when there is a large residual, shareholders are the proper claimant – they could in fact have earned nothing since there is no guarantee that there will be a residual (Jensen 1986; for a critique see Lazonick 2012). Or so goes the theory. Shareholder-value ideology is based on this notion of shareholders as the ‘residual claimants’ and thus the lead risk takers with no guaranteed rate of return (Jensen 1986). This argument has been used to justify shareholders’ massive returns (Lazonick 2007; Lazonick and Mazzucato 2013). Yet this framework assumes that other agents in the system (taxpayers, workers) do have a guaranteed rate of return, amongst other things ignoring the fact that some of the riskiest investments by government have no guarantee at all: for every successful investment that leads to a new technology like the Internet, there are a host of failed investments – precisely because innovation is so uncertain.

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The latter outcome occurs when certain actors are able to position themselves at the point – along the cumulative innovation curve – where the innovative enterprise generates financial returns; that is, close to the final product market or, in some cases, close to a financial market such as the stock market. These favoured actors then propound ideological arguments, typically with intellectual roots in the efficiency propositions of neoclassical economics (and the related theory of ‘shareholder value’), that justify the disproportionate shares of the gains from innovation that they have been able to appropriate. These ideological arguments invariably favour financial contributions to the innovation process over both worker contributions and taxpayer contributions. Ultimately, precisely because innovation is a collective and cumulative process, the imbalance in the risk–reward nexus not only results in greater inequality but also undermines the innovation process itself.

pages: 345 words: 92,063

Power, for All: How It Really Works and Why It's Everyone's Business
by Julie Battilana and Tiziana Casciaro
Published 30 Aug 2021

Even when directors fulfill their oversight duties, they do so mostly on behalf of shareholders whose capital is invested in the company.33 However, companies have other stakeholders on whom they depend and who are directly affected by corporate activities—including employees, customers, suppliers, and more broadly, the general public—but who mostly have no say in the company’s direction. It is not surprising, then, that in many companies the past decades have been marked by the sole pursuit of shareholder value maximization. An unmistakable symptom of this concentration of power in the hands of shareholders and top executives is the widening income gap between top managers and workers. The average ratio of highest to lowest salary in U.S. corporations grew from 20-to-1 in 1965 to 320-to-1 by 2019.

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The environmental battles that have pitted big lobbyists against environmental activists epitomize this tug and pull, and this multigenerational mobilization effort is starting to pay off. Employees have also been pushing for change from within, as we saw in chapter 7, organizing internally to urge executives to stop focusing solely on shareholder value maximization and account for their company’s social and environmental impact, too. In the face of this increased pressure, many corporate leaders have expressed their desire to serve other stakeholders in addition to their shareholders.36 In August 2019, the Business Roundtable, whose membership includes the CEOs of most major U.S. corporations, issued a statement rejecting the primacy of shareholders in favor of creating value for their employees and stakeholders, including their customers, and society at large.

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See also Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism (Harper Business, 2021). 37 Tyler Wry, Kevin Chuah, and Michael Useem, Rigidity and Reversion: Why the Business Roundtable Faltered in the Face of COVID (Wharton School Working Paper, 2021). 38 Alnoor Ebrahim, Julie Battilana, and Johanna Mair, “The Governance of Social Enterprises: Mission Drift and Accountability Challenges in Hybrid Organizations,” Research in Organizational Behavior 34 (2014): 81–100; Julie Battilana et al., “Beyond Shareholder Value Maximization: Accounting for Financial/Social Tradeoffs in Dual Purpose Companies,” The Academy of Management Review, in press; Alnoor Ebrahim, Measuring Social Change: Performance and Accountability in a Complex World (Redwood City: Stanford Business Books, 2019). 39 Julie Battilana, Anne-Claire Pache, Metin Sengul, and Marissa Kimsey, “The Dual-Purpose Playbook,” Harvard Business Review 97, no. 4 (2019): 124–33; Julie Battilana, “Cracking the Organizational Challenge of Pursuing Joint Social and Financial Goals: Social Enterprise as a Laboratory to Understand Hybrid Organizing,” M@n@gment 21, no. 4 (2018): 1278–305; Ebrahim, Battilana, and Mair, “The Governance of Social Enterprises.” 40 Chris Marquis, Better Business: How the B Corp Movement is Remaking Capitalism (New Haven: Yale University Press, 2020). 41 Cornelia Caseau and Gilles Grolleau, “Impact Investing: Killing Two Birds with One Stone?”

pages: 254 words: 61,387

This Could Be Our Future: A Manifesto for a More Generous World
by Yancey Strickler
Published 29 Oct 2019

Becoming a PBC reflected the values that Kickstarter had always had. But those same values put us at some theoretical risk as a traditionally structured for-profit company. Theoretically our public statements about not wanting to sell or go public could have led to a shareholder suing because these decisions meant we were not open to all forms of maximizing shareholder value. Something like this happening was extremely unlikely, but there is precedent: in 2000, Ben & Jerry’s board of directors was pressured to sell the company to Unilever over the founders’ objections. If Ben & Jerry’s had declined the offer, investors were threatening to sue, accusing the board members of neglecting their fiduciary obligations.

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“our own worst enemies”: As reported in the Wall Street Journal (“Recycling, Once Embraced by Businesses and Environmentalists, Now Under Siege,” May 13, 2018) the case for financial maximization: Milton Friedman’s New York Times essay was titled “The Social Responsibility of Business Is to Increase Its Profits,” published on September 13, 1970. single goal: to maximize profitability: Background on what I call the Maximizing Class comes from several sources. Most important is analysis by economists William Lazonick and Mary O’Sullivan. In a paper called “Maximizing Shareholder Value: A New Ideology for Corporate Governance,” published in the journal Economy and Society in 2010, Lazonick and O’Sullivan detail the history of what I call financial maximization. Their research finds that before the early 1970s when this new idea emerged, companies followed a “retain and reinvest” model, where profits were turned into additional services, products, pay raises, and training for employees.

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see what’s happened: Data on outstanding credit in America comes from the “Federal Reserve’s Consumer Credit Outstanding (Levels) 1943–2018” and the US Census Bureau’s Households by Type data. tends to go up: Background on stock buybacks comes from economist William Lazonick’s 2010 Brookings Institution paper “Stock Buybacks: From Retain-and-Reinvest to Downsize-and-Distribute,” and his 2011 paper “From Innovation to Financialization: How Shareholder Value Ideology Is Destroying the US Economy” (published in the Oxford University Press collection The Handbook of the Political Economy of Financial Crises). Additional background came from “Stock Buybacks: Misunderstood, Misanalyzed, and Misdiagnosed” by Aswath Damodaran for the American Association of Individual Investors, and data from a research report by Goldman Sachs analyst Stuart Kaiser.

pages: 598 words: 172,137

Who Stole the American Dream?
by Hedrick Smith
Published 10 Sep 2012

Still, Dunlap walked away with a fortune big enough to retire to a much larger estate than the one I had seen—a 9,700-square-foot mansion with its own pond and an indoor swimming pool. Short-Term vs. Long-Term At every step, Dunlap’s defense echoed the mantra of New Economy CEOs: He was creating shareholder value. “I work for you,” he told Sunbeam shareholders. “You own the company.” To Wall Street, that signaled a CEO focused on boosting the company’s stock price in the short term for investor gains. That cost-cutting, shareholder-value formula rankled more traditional corporate leaders such as Bob Galvin at Motorola and Henry Schacht, former CEO of Lucent Technologies, who believed in long-term growth and value.

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Pay for Performance The economic rationale for those big stock grants by Corporate America was “pay for performance”—rewarding CEOs and senior executives by supposedly aligning management’s interests with stockholder interests. As Milton Friedman put it, that would motivate the captains of industry to “maximize shareholder value” by steadily improving the stock price of their companies. “Shareholder value”—that is, stock price—became the be-all and end-all of corporate CEOs in the New Economy. The idea sprang from an academic paper by two of Friedman’s graduate students who became assistant professors, Michael C. Jensen of Harvard Business School and William H.

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With America’s changing political climate and the rising influence of pro-business conservatism, CEOs went from being under fire in the 1960s and 1970s, as Lewis Powell observed, to being lionized as superstars in the 1990s and 2000s, supposedly entitling them to pay on a par with Hollywood celebrities and star athletes. Paul Volcker: The Lake Wobegon Syndrome CEOs and their corporate boards boldly argued that rising CEO pay was merited because CEOs increased shareholder value; moreover, they said, the rise was dictated by the invisible hand of the market. Shareholder activists and scholars dispute this. Princeton economist Paul Krugman suggested that the seedbed for CEO fortunes was the cozy fraternity inside corporate boards of directors. “The key reason executives are paid so much now is that they appoint the members of the corporate board that determines their compensation …,” Krugman said.

How I Became a Quant: Insights From 25 of Wall Street's Elite
by Richard R. Lindsey and Barry Schachter
Published 30 Jun 2007

As I try to summarize the source of my contributions to the industry, I believe that it lies in the early phrasing of the question rather than in the application of any specific quantitative technique, no matter how useful the tool may be for answering the question. Fortunately for me, there was no lack of important and challenging questions raised by the rapid developments in the risk-management world over the past 20 years, especially in the area of market risk in the early 1990s, credit risk in the late 1990s, and, now more than ever, shareholder value creation. Over my career, I have contributed to each of these areas; at times, I have had to learn new statistical, mathematical and financial techniques. As a consequence, my path to becoming a quant has to be seen in the context of the industry developments that I describe in the rest of this section.

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I have always enjoyed identifying and framing the question earlier than others, and been conscious that answering the question, once phrased, would nonetheless require me to learn new quantitative tools. The Questions Fortunately, important, interesting, and challenging questions with substantial business and managerial implications have presented themselves during the past 20 years. They fall roughly into the three main areas of market risk, credit risk, and shareholder value creation. Although many of the questions and answers in each of these areas are taken for granted today, they often challenged conventional wisdom at the time. In the remainder of this section, I summarize the historical context and the questions that I found interesting in each of these areas.

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Without the development of Raroc models, it is doubtful institutions would have had the courage and the commitment to fundamentally change their corporate credit strategy and practices. JWPR007-Lindsey May 7, 2007 16:50 Thomas C. Wilson 103 This trend in using Raroc measures to guide corporate strategy has continued throughout the 1990s and into the next decade as institutions have reinforced their focus on shareholder value creation. For example, most financial services institutions use Raroc as a cornerstone for their Economic Profit or Economic Value AddedTM framework, guiding their investment in and development of different lines of business. As a consequence, the identification and correction of any possible bias in Raroc has become even more important today than ever.

pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

—Benjamin Graham (1973, pp. 286–287) Most active equity investors trade based on discretionary judgment, and many of the most successful ones swear to the principles of Graham and Dodd (1934) and Graham (1973). As is clear from the quote above, this means thoroughly analyzing a firm’s business and its future profit potential, considering whether the management has the ability to deliver on this potential and the integrity to pay the profits out to shareholders, valuing the firm in relation to its price, and acting on your judgment even if it goes against conventional wisdom. The hedge funds that use these strategies are called long–short equity funds. Long–short hedge funds seek to buy excellent stocks that trade at a discount and to short-sell bad stocks that are overvalued.

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One has increased its sales with “same-store sales growth,” that is, it has increased sales in its existing shops, kept expenses constant, and increased profit margins. Clearly such same-store sales growth is good. The other retail chain has also increased sales, but this has been accomplished by buying up other retailers at premium prices. Such a strategy of asset growth, not profit growth, can often be flawed and can hurt shareholder value unless the acquisitions have special synergies or are done at very favorable prices. Profitability and Earnings Quality Clearly a more profitable firm is more valuable than a less profitable (or unprofitable) one. Profitability can be measured in several different ways, ranging from the reported earnings number, to measures focused on cash flows, to the “top line” gross profits (revenues minus cost of goods sold).1 Equity investors seek to determine a company’s ability to continue to make true economic profits in a sustainable way.

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Payout and Management Quality A fourth class of quality measures focuses on how shareholder-friendly the firm is and how well managed it is. Specifically, one can look at whether profits are paid out to shareholders as dividends or share repurchases or how they otherwise benefit shareholders. In other words, does the firm’s management seek to maximize shareholders’ value or to extract private benefits for itself? For instance, some managers focus on generating cash for lavish perks, such as corporate jets, rather than for shareholders. Also, some managers act as “empire builders” who go on sprees of expensive acquisitions rather than focusing on profit growth.

pages: 362 words: 97,473

Sickening: How Big Pharma Broke American Health Care and How We Can Repair It
by John Abramson
Published 15 Dec 2022

In 1997 the Business Roundtable unapologetically acknowledged the narrowing of corporate priorities: “The principal objective of a business enterprise is to generate economic returns to its owners. . . . If the CEO and the directors are not focused on shareholder value, it may be less likely the corporation will realize that value.” The measure of corporate performance became the short-term bottom line. Maximum greed, restrained only by the reputational drag on stock value, was no longer a pejorative. Quite the contrary — it had become the measure of managerial performance. To align executive and shareholder interests, CEO remuneration was tied to shareholder value, with stock grants and options accounting for more than 60 percent of CEO compensation. CEO salaries skyrocketed from “only” 30 times more than that of their average employees in 1976 to 276 times greater in 2017, more than twice as much as in thirteen other wealthy countries.

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He and Alan Greenspan, the Reagan-appointed chair of the Federal Reserve, maintained that allowing markets to regulate themselves would create the greatest prosperity. Other conservative economists concurred, arguing society was best served by corporate managers “single-mindedly working to maximize shareholder value,” as measured by the price of shares on the stock market. President Reagan combined broad deregulation with minimal enforcement of antitrust laws. In 1982 the savings and loan banks that financed local home mortgages were freed to make risky investments that were in large part protected by federal insurance.

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withholding or misrepresenting: Aidan R. Vining and David L. Weimer, “Information Asymmetry Favoring Sellers: A Policy Framework,” Policy Sciences 21, no. 4 (1988): 281–303. What I am calling a “credence good,” Vining and Weimer refer to as a “post-experience good.” in effect, mandates: Stephen Bainbridge, “A Duty to Shareholder Value,” New York Times, April 16, 2015. accepted as knowledge: Susan Haack, Evidence and Inquiry: Towards Reconstruction in Epistemology (Oxford: Wiley-Blackwell, 1995), 206. Their book debunks: Akerlof and Shiller, Phishing, Kindle location 429. aim about two-thirds: Lisa M. Schwartz and Steven Woloshin, “Medical Marketing in the United States, 1997–2016,” Journal of the American Medical Association 321, no. 1 (2019): 80–96.

pages: 257 words: 71,686

Swimming With Sharks: My Journey into the World of the Bankers
by Joris Luyendijk
Published 14 Sep 2015

One week it’s Diversity Week, the next it’s I-don’t-know-what Week…’ Amorality ensures a level playing field, according to interviewees. What’s more, they added: it is not like banks have a choice. This brought us to the second counter-argument that came up in the interviews. Amorality as an organising principle is imposed on us and enforced by shareholders, who look at returns and returns only. The term here is shareholder value, essentially a doctrine holding that companies listed on the stock exchange must be judged by one criterion: the value they create for their owners, the shareholders. The rock’n’roll trader needed only a few sentences to sketch the straitjacket: ‘If you are a pension fund with shares in Morgan Stanley, and you see that Goldman Sachs made 50 per cent more profit, you will not like that.

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The Sauvignon Blanc employee relations manager had often witnessed how from one day to the next headquarters could announce a 5 per cent ‘headcount reduction’ – another sterilising term to describe sudden mass lay-offs. The logic is inexorable: lower costs mean higher profits and hence more shareholder value. This is an environment where it is everyone for themselves, people would say, often with a shrug. ‘I could tell you crazy stories about people being dragged from the toilets, from hospital, from holidays …’ said the former PR and communications officer. ‘A colleague would get a call at 2 a.m. from her boss in New York: “Send me X right away!”

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If on New Year’s Eve the oil price ends up below that level you collect your premium – like a travel insurer who does not need to pay out after a problem-free holiday. But if instead the oil price has risen you have to pay. The point is that the oil price can go up a long way, and with it your losses. Bankers are correct to point out that virtually all multinational corporations are publicly listed and therefore subject to the amoral regime of shareholder value. However, a handful of employees in a division somewhere at Shell or McDonald’s are highly unlikely to cause their company a few billions in losses. At investment banks this is a very real possibility, as former investment banker Rainer Voss says in the Master of the Universe documentary: ‘I cannot think of another industry where one individual can lose his company so much money.’

pages: 120 words: 33,892

The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market
by Tobias E. Carlisle
Published 13 Oct 2017

He’s “put[ting his] own personal interests ahead of the shareholders” and “strip[ping the] assets at an unfair price.”57 Loeb says that Agribrands’s cash and cash flows belong to Agribrands’s shareholders. They should not to be used to “serve the empire-building desire of Ralcorp’s management team.” Loeb wants Agribrands put up for sale “to maximize shareholder value.”58 Very truly yours, Daniel S. Loeb On December 4, 2000, three months after Loeb sends his letter, Agribrands announces that it will not sell to Ralcorp. Instead, Cargill, a privately owned processor of feed and agricultural products, will be the bidder. The price? $54.50 per share, $15.50 and 36 percent more than Ralcorp offered.

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Einhorn said that Apple’s $150 billion in cash was too much for a stock with only $60 billion in fixed assets. Apple could use it to buy “all but 17 companies in the S&P 500.”59 It earned next to no interest. It was better in the hands of shareholders. He said Apple’s stock price was discounted to the value of the cash, about $20 per share. Apple could “unlock significant shareholder value” by cutting the cash on its “bloated balance sheet.”60 Einhorn wasn’t the only activist to complain about Apple’s cash pile. Carl Icahn wrote an open letter to Apple’s chief executive, Tim Cook. Icahn asked for Apple to return cash through a $150 billion buyback. Icahn wrote in the letter:61 When we met, you agreed with us that the shares are undervalued.

pages: 350 words: 103,270

The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . And Are Ready to Do It Again
by Nicholas Dunbar
Published 11 Jul 2011

An enabler of a massive shift of power toward love-to-win traders that traditionalists barely understood despite their insistence that they too were “sophisticated.” A mechanism for replicating reality and synthesizing financial robots that allowed complexity to go viral. It’s time to meet our first derivatives. CHAPTER ONE The Bets That Made Banking Sexy Starting in the late 1980s, a new emphasis on shareholder value forced large banks to improve their return on capital and start acting more like traders. This sparked an innovation race between two ways of transferring credit risk: the old-fashioned “letter of credit” versus a recent invention, the credit default swap (CDS). Behind this race were two ways of looking at credit: the long-term actuarial approach versus the market approach.

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Although the nature of the losses was different, the challenge for Chase Manhattan and J.P. Morgan was the same: they had had to ratchet up credit exposure in order to compete, and now they had to find ways of cutting it back again without jeopardizing revenues. Shapiro explained that this pressure came from the fashionable doctrine of shareholder value added (SVA). Invented in the 1980s and associated with General Electric CEO Jack Welch, SVA argued that nonfinancial companies should ditch low-growth businesses that tied up shareholder capital, and produce a bigger return for shareholders. But how did it apply to banks, whose primary business was lending money?

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Abbey National was once the United Kingdom’s biggest building society, or thrift. However, after demutualizing in the 1980s, the new shareholder-driven bank was bitten by the same credit diversification bug that had bitten the Germans and the Italians. Its 2000 annual report said as much. The headline declared that the bank was “building shareholder value,” and it allocated a quarter of its $150 billion balance sheet to the first generation of CDOs and other exotic securitizations then being sold by Wall Street firms. By the summer of 2002, the folly of this strategy became apparent, as the post-dot-com downturn swept across Abbey’s bond portfolio, resulting in the first of what would be $2 billion write-downs.

pages: 385 words: 101,761

Creative Intelligence: Harnessing the Power to Create, Connect, and Inspire
by Bruce Nussbaum
Published 5 Mar 2013

Top managers, locked into the stock price of their companies, are expected to meet or exceed the quarterly estimates of Wall Street analysts. “Shareholder value” is the paramount, often the only, guiding principle to corporate behavior, with stock prices on financial markets the one signal of success or failure. After talking to Wall Street recruits while doing fieldwork for her book Liquidated: An Ethnography of Wall Street, Karen Ho, a professor of anthropology at the University of Minnesota, wrote that “shareholder value was the most important concept with which my informants made sense of the world and their place in it: it shaped how they used their ’smartness’ and explained the purpose of their hard work.. . .

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From the 1920s through much of the 80s, when professional managers ran most of America’s large corporations, business leaders saw themselves as professionals serving a broad range of interests, many of them social. They felt a collective responsibility to stakeholders—employees, local communities, the national government, customers, suppliers—as well as shareholders. In the 1990s, the CEO’s role was recast as a maximizer of shareholder values, but before that “a higher interest was the sin qua non of business professionalism,” says Harvard Business School professor Rakesh Khurana. The heads of big corporations felt they had a “calling” to do good for the nation. This sense of calling is now rare among CEOs of global corporations, who focus on shareholders and see themselves as global citizens, not leaders of local communities.

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After talking to Wall Street recruits while doing fieldwork for her book Liquidated: An Ethnography of Wall Street, Karen Ho, a professor of anthropology at the University of Minnesota, wrote that “shareholder value was the most important concept with which my informants made sense of the world and their place in it: it shaped how they used their ’smartness’ and explained the purpose of their hard work.. . . Creating shareholder value was morally and economically the right thing to do.” THE FINANCIAL CRASH THAT BROUGHT on the worst recession since the Depression has, of course, tarnished the efficient market theory. Throughout the economics establishment, there is recognition that the model didn’t work as promised. First, the markets didn’t act rationally. Losses in one small sector of the huge, multitrillion dollar financial market—subprime mortgages—were enough to set off a worldwide panic, leading to the collapse or near-collapse of some of the largest financial institutions.

pages: 267 words: 79,905

Creating Unequal Futures?: Rethinking Poverty, Inequality and Disadvantage
by Ruth Fincher and Peter Saunders
Published 1 Jul 2001

(Froud et al. 1998) This analysis suggests that the combination of ‘high incomes for some plus enforced participation for others’ is a futile one for achieving stable economic development. The secondary investment circuit identified by Froud and her colleagues is responsible for intensifying inequality and unstable labour demand. This occurs because ‘shareholder value’ is the dominant criterion guiding saving and investment. The pursuit of shareholder value causes endless restructures and cost shifting exercises which adversely affect the workforce. Far from solving the problem, the spread of share ownership and of privately based superannuation actually destabilises the situation further. As Froud and her colleagues put it: what we have is a Keynesian paradox about the unequal society where the pursuit of individual security through investment in the capital market spreads collective insecurity through labour market redundancy and reemployment which is part of restructuring.

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Manning (1998, p. 32) emphasises the need for a change in the values underpinning such power relations if unemployment is to be reduced in future, but sees the expectations of rapidly increasing income among bondholders, consumers, executives and professionals as obstacles to its achievement. Watson and Buchanan in Chapter 7 agree that this ‘shareholder value’ is responsible for 17 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 17 CREATING UNEQUAL FUTURES? intensifying inequality and spreading insecurity across the workforce. Private sector firms are not the only workplace sites in which unemployment-generating strategies have been deployed.

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Nieuwenhuysen, Melbourne University Press, Melbourne, pp. 144–64 Fischer, C. et al. 1996 Inequality by Design: Cracking the Bell Curve Myth, Princeton University Press, Princeton, New Jersey Fitchen, J.M. 1995 ‘Spatial redistribution of poverty through migration of poor people to depressed rural communities’ Rural Sociology vol. 60, no. 2, pp. 181–201 FNQ 2010 Regional Planning Project 1998 Strategic Directions and Regional Priorities for Far North Queensland draft for Consultation, Far North Queensland Regional Planning Advisory Committee for the Queensland Department of Local Government and Planning Forde, S. 1997 ‘A descriptive look at the public role of the Australian independent alternative press’ Asia-Pacific Media Educator no. 3, pp. 118–30 ——1998, ‘The development of the alternative press in Australia’ Media International Australia no. 87, pp. 114–33 Fraser, N. 1989 Unruly Practices: Power, Discourse and Gender in Contemporary Social Theory, University of Minnesota Press, Minneapolis Froud, J. et al. 1997 ‘From social settlement to household lottery’ Economy and Society vol. 26, no. 3, pp. 340–72 Froud, J. et al. 1998 ‘Accumulation based on inequality’: a Keynesian analysis of investment for shareholder value, Paper presented at the 20th Conference of the International Working Party on labour market segmentation, Arco (Trento), July ——1999 ‘The Third Way and the jammed economy’ Capital and Class no. 67, Spring, pp. 155–66 Fuchs, V. 1965 Toward a Theory of Poverty in the Concept of Poverty Task Force on Economic Growth and Opportunity, Chamber of Commerce of the United States, Washington Galbraith, J.K. 1992 Culture of Contentment, Sinclair-Stevenson, London 235 PDF OUTPUT c: ALLEN & UNWIN r: DP2\BP4401W\MAIN p: (02) 6232 5991 f: (02) 6232 4995 36 DAGLISH STREET CURTIN ACT 2605 235 CREATING UNEQUAL FUTURES?

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A Pelican Introduction Economics: A User's Guide
by Ha-Joon Chang
Published 26 May 2014

One is making corporate takeover easier (so more Gordon Gekkos, please), so that managers who do not satisfy the shareholders can be easily replaced. The second is paying large parts of managerial salaries in the form of their own companies’ stocks (stock option), so that they are made to look at things more from the shareholder’s point of view. The idea was summarized in the term shareholder value maximization, coined in 1981 by Jack Welch, the then new CEO and chairman of General Electric, and has since ruled the corporate sector first in the Anglo-American world and increasingly in the rest of the world. Workers and governments also influence corporate decisions Though it is not common in the US and Britain, workers and the government also exercise significant influences on corporate decision-making.

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For example, in the UK, the average period of shareholding, which had already fallen from five years in the mid-1960s to two years in the 1980s, plummeted to about 7.5 months at the end of 2007.15 This has resulted in the formation of an ‘unholy alliance’ between the professional managers of corporations and the growing band of short-term shareholders, under the rallying call of ‘shareholder value maximization’ (see Chapter 5). In this alliance, astronomical salaries were paid to managers in return for maximizing short-term profits – even at the cost of product quality and worker morale – and distributing the biggest possible proportions of those profits to the shareholders, in the form of dividends and share buy-backs (companies buying up their own shares in order to prop up the share price).

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The ratio then briefly fell to zero for a few years in the mid-2000s, but went up again to 35 per cent following the 2008 global financial crisis. The ‘unholy alliance’ between short-term-oriented shareholders and professional managers has reduced the ability of corporations to invest The rise of the ‘shareholder value maximization’ model in the era of new finance has dramatically reduced the resources available for long-term investments in non-financial corporations. The era has seen a dramatic rise in distributed profits, that is, profits given to shareholders in the forms of dividends and share buy-backs.

pages: 667 words: 149,811

Economic Dignity
by Gene Sperling
Published 14 Sep 2020

Predictably, the Trump administration has reversed an Obama administration rule that would have given farmers access to legal remedies for such unfair practices. STRUCTURING CORPORATE PURPOSE FOR SHAREHOLDER MAXIMIZATION OR OVERALL ECONOMIC WELL-BEING? The question of whether the ultimate end goal of corporations should be the maximization of shareholder value is another textbook example of the rule that all market structure is shaped by government policy. The idea that corporations must ultimately serve only the interests of shareholders has often been taught and presented as if it arises out of an intrinsic and long-standing market logic. The call for a broader corporate purpose is often seen as disruptive meddling with a long-standing market understanding and status quo.

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He has written that despite the wide discretion courts provide corporate managers through the “business judgment rule,” under Delaware law, if a corporate executive or board “is treating an interest other than stockholder wealth as an end in itself, rather than an instrument to stockholder wealth, he is committing a breach of fiduciary duty.”31 For example, when Craigslist founder Craig Newmark explicitly admitted that his main concern was for the services provided to the consumer, rather than monetizing the website, he was successfully sued for not being solely focused on shareholder wealth.32 Think about how out of touch that is with widespread values. If a CEO made the candid admission in the middle of a recession that she was going to keep all her workers employed solely because she was putting her workers first regardless of shareholder value, she would be a folk hero, perhaps the subject of a Netflix movie. Yet the precise reason for such adoration—that she explicitly did it for the welfare of the workers and surrounding community alone—would be damning evidence in a lawsuit. This is a classic case of markets being structured in a way that virtue will not go unpunished.

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With executive and board compensation still heavily stock-based, and given the needs for future financing and the threat of disinvestment, is there any serious basis for concern that if we moved to a stakeholder test, CEO after CEO would go hog wild in promoting workers and local communities at the expense of shareholder value?34 Or that courts could not develop case law that distinguishes an effort to be a good employer from a reckless transaction that makes zero business sense? Indeed, the entire notion that shareholders should be seen as the “owner” of the firm—the stakeholder who is the largest risk-taker in corporations—defies real-world experience.

pages: 263 words: 75,455

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
by Wesley R. Gray and Tobias E. Carlisle
Published 29 Nov 2012

O'Shaughnessy also finds that stocks in the decile of stocks issuing the most shares in a year gain on average just 5.94 percent, underperforming the market return by 4.52 percent per year. Investors should be wary of stocks issuing lots of shares. Capital management is a little understood, yet critical, issue for shareholder value creation. The research is clear: Investors should seek the rare stocks with a manager like Singleton or Buffett at the helm, who buy back shares only at trough valuations, are miserly with options, and issue shares only when the share price exceeds the stock's intrinsic value. Investors should keep a close eye on a management's capital allocation behavior.

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A manager who buys back stock at a peak valuation destroys value as surely as the manager who issues shares at a trough valuation. Investors should avoid managers who play games with buyback announcements, if only because such behavior suggests that they are more focused on the share price than the underlying value and might be squandering an opportunity to enhance shareholder value by not completing the buyback. INSIDER TRADERS BEAT THE MARKET In addition to undertaking buybacks, managements can express their view on the under- or overvaluation of their stock through their own trading. The trading activity of “insiders” (corporate officers, directors, and large stockholders) has attracted the interest of both academics and practitioners for over 40 years.

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The paper suggests that the filing of a Schedule 13D notice by an activist hedge fund is a catalytic event for a firm that heralds substantial positive returns in the stock. Klein and Zur find that targeted stocks outperform the market by an average of between 10.2 percent and 5.1 percent during the period surrounding the initial Schedule 13D. These findings suggest that, on average, the market believes activism creates shareholder value. Most interesting, the market-beating returns do not dissipate in the one-year period following the initialSchedule 13D. Instead, target stocks earn an additional 11.4 percent to 17.8 percent above-market return during the year following the activists' interventions. The market-beating returns may be due to changes in stock operations implemented at the behest of the activist investors (see Table 9.1).

pages: 280 words: 74,559

Fully Automated Luxury Communism
by Aaron Bastani
Published 10 Jun 2019

Whereas the primary values of the present system are cutting costs and maximising shareholder value, here regional and income inequality would be mitigated and a far broader range of ownership models would emerge. In reality this would mean that the only companies able to bid for specific local contracts would have to meet specific criteria, whether it is being based within a certain distance (perhaps ten kilometres or within a county or state); being a worker-owned cooperative; offering organic products or being powered by renewable energy. Shareholder value would be replaced by these kinds of metrics in calculating what makes the most sense.

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In each sphere the tide must be turned and, while doing so, placed within an explicit commitment to creating a world entirely different to that of the present. This break must start by switching off the privatisation and outsourcing machine. The reason why is simple: its prevailing logic demands that every public good – from healthcare and education to housing – be sacrificed on the altar of private profit and shareholder value. In this respect privatisation and outsourcing must be viewed as two sides of the same coin. While the former has taken centre stage in undermining the state’s provision of public goods – with whole industries privatised en masse over the last fifty years – the latter has proven equally effective in funnelling private profits while maintaining a veneer of public ownership and accountability.

pages: 261 words: 79,883

Start With Why: How Great Leaders Inspire Everyone to Take Action
by Simon Sinek
Published 29 Oct 2009

What’s more, a strong succession plan should aim to find a leader inspired by the founding cause and ready to lead it into the next generation. Future leaders and employees alike must be inspired by something bigger than the force of personality of the founder and must see beyond profit and shareholder value alone. Microsoft has experienced a split, but is not so far down the line that it can’t be put back on track. There was a time not too long ago that people at Microsoft showed up at work every day to change the world. And they did. What Microsoft achieved, putting a PC on every desk, dramatically changed the way we live.

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Gates recognizes the need for people to produce real change, but he neglected to remember that any effective movement, social or business, needs a leader to march in the front, preaching the vision and reminding people WHY they showed up in the first place. Though King needed to cross the bridge from Selma on his march to Montgomery, it was what it meant to cross the bridge that mattered. Likewise in business, though profit and shareholder value are valid and essential destinations, they do not inspire people to come to work. Although Microsoft went through the split years ago, changing from a company that intended to change the world into a company that makes software, having Gates hanging around helped Microsoft maintain at least a loose sense of WHY they existed.

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Wal-Mart got as big as it did doing the exact same thing—focusing on WHY and ensuring that WHAT they did proved it. Money is never a cause, it is always a result. But on that fateful day in April 1992, Wal-Mart stopped believing in their WHY. Since Sam Walton’s death, Wal-Mart has been battered by scandals of mistreating employees and customers all in the name of shareholder value. Their WHY has gone so fuzzy that even when they do things well, few are willing to give them credit. The company, for example, was among the first major corporations to develop an environmental policy aimed at reducing waste and encouraging recycling. But Wal-Mart’s critics have grown so skeptical of the company’s motives that the move was largely dismissed as posturing.

pages: 290 words: 76,216

What's Wrong With Economics: A Primer for the Perplexed
by Robert Skidelsky
Published 3 Mar 2020

The above two analyses of non-market coordination help explain the seeming paradox of organisations which exist to serve the interests of their members imposing codes of behaviour which seemingly fail to maximise their independent utility functions. It helps explain the phenomena of military regiments which sacrifice themselves in a hopeless cause, of firms which fail to maximise shareholder value, of trade unions which fight for higher wages even if it means unemployment. It is true that a map filled with such agents doesn’t give you a sparse model. The motives of the organisation lack the hard edge of maximisation, and the outcomes of its behaviour are thereby indeterminate. But we require not better theory, but better understanding.

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For example, John Rawls’s (1921–2002) principle that inequality is justified to the extent that it improves the position of the least well-off owes something to Locke’s idea that property ownership requires a moral justification. Outside mainstream economics there has been a revival of interest in the question of the moral responsibilities of ownership. Should companies have moral responsibilities in addition to their legal responsibility to maximise shareholder value? Ideas of ‘corporate social responsibility’ and ‘stakeholder’ capitalism are fruits of such discussion, though ‘corporate social responsibility’ is largely big business propaganda. There have been studies showing that firms which take seriously their responsibilities to their employees, suppliers, and neighbourhoods achieve better ‘bottom lines’ than companies which attend only to the interests of their owners and senior managers.

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(Ramachandran, 2010: 95) 12. Locke, 1764 [1689]: 220 13. Pigou, 1932 [1920] 14. Kaldor, 1939 15. I vividly recall being at a debate in Moscow in the early 2000s between two Russian businessmen, Kakha Bendukidze and Mikhail Khodorkovsky. Bendukidze argued that a firm’s duty to society was limited to maximising shareholder value; Khodorkovsky claimed that it had an additional duty to society. Bendukidze was simply echoing the view of neoclassical economics that firms should be seen as giant-sized profit-maximising individuals. This indeed became the standard doctrine of the 1980s: firms had no social obligation beyond maximising profits for their owners (shareholders).

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Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You
by Sangeet Paul Choudary , Marshall W. van Alstyne and Geoffrey G. Parker
Published 27 Mar 2016

Hillel Aron, “How eBay, Amazon and Alibaba Fuel the World’s Top Illegal Industry—The Counterfeit Products Market,” LA Weekly, December 3, 2014, http://www.laweekly.com/news/how-ebay-amazon-and-alibaba-fuel-the-worlds-top-illegal-industry-the-counterfeit-products-market-5261019. 17. Andrei Shleifer and Robert W. Vishny, “A Survey of Corporate Governance,” Journal of Finance 52, no. 2 (1997): 737–83, esp. 737. 18. Steve Denning, “The Dumbest Idea in the World: Maximizing Shareholder Value,” Forbes, November 28, 2011, http://www .forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/. 19. Alvin E. Roth, “The Art of Designing Markets,” Harvard Business Review 85, no. 10 (2007): 118. 20. Lawrence Lessig, Code and Other Laws of Cyberspace (New York: Basic Books, 1999). 21. Dana Sauchelli and Bruce Golding, “Hookers Turning Airbnb Apartments into Brothels,” New York Post, April 14, 2014, http://nypost.com/2014/04/14/hookers-using-airbnb-to-use-apartments-for-sex-sessions/; Amber Stegall, “Craigslist Killers: 86 Murders Linked to Popular Classifieds Website,” WAFB 9 News, Baton Rouge, LA, April 9, 2015, http://www.wafb.com/story/28761189/craigslist-killers-86-murders-linked-to-popular-classifieds-website. 22.

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All these terminological changes reflect the fact that marketing messages once disseminated by company employees and agents now spread via consumers themselves—a reflection of the inverted nature of communication in a world dominated by platforms.2 Similarly, information technology systems have evolved from back-office enterprise resource planning (ERP) systems to front-office consumer relationship management (CRM) systems and, most recently, to out-of-the-office experiments using social media and big data—another shift from inward focus to outward focus. Finance is shifting its focus from shareholder value and discounted cash flows of assets owned by the firm to stakeholder value and the role of interactions that take place outside the firm. Operations management has likewise shifted from optimizing the firm’s inventory and supply chain systems to managing external assets the firm doesn’t directly control.

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Additionally, platform governance rules must pay special heed to externalities. These are endemic in network markets, since, as we’ve seen when examining network effects, the spillover benefits users generate are a source of platform value. Understanding this forces a shift in corporate governance from a narrow focus on shareholder value to a broader view of stakeholder value. Market designer and Nobel Prize-winning economist Alvin Roth described a model of governance that uses four broad levers to address market failures.19 According to Roth, a well-designed market increases the safety of the market via transparency, quality, or insurance, thereby enabling good interactions to occur.

pages: 561 words: 114,843

Startup CEO: A Field Guide to Scaling Up Your Business, + Website
by Matt Blumberg
Published 13 Aug 2013

Incentive Pay In terms of plan design, you and your team need to be thoughtful about incentive compensations plans and payout every year. You need to pitch; the compensation committee needs to catch. Build your proposed plan based on what you think the most important objectives are for the company to build shareholder value each year. Answer this question for yourself: “If we did all of this, would we be totally excited at the end of the year?” If the answer is yes, you have a good plan, regardless of the specific metrics. It could be entirely based on revenue or revenue growth. It could be entirely based on EBITDA, operating profit, a combination of the two, or neither.

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Whatever you do, make the plan as simple and quantitative as possible (even if it’s a series of black-and-white qualitative goals, each worth a percentage of the overall plan). Another guidepost could be uncapped, which, particularly when your metrics are revenue and profit, makes a lot of sense. If you achieve revenue or profit metrics that clearly build a ton of shareholder value beyond plan, you should participate in that success. Payout is much easier, particularly if the plan is simple and quantitative. At the end of the year, you report back to the Compensation Committee what the percentage attainment was. If you want to have a conversation about increasing the number or decreasing it based on other factors, you can do that but you should have a very good reason.

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I had an interesting conversation the other day with a friend who sits on a couple of boards, as do I. We ended up in a conversation about some challenges one of his boards is having with their CEO and the question to some extent boiled down to this: a board is responsible for hiring/firing the CEO and for being the guardians of shareholder value but what does a board do when it doesn’t like the CEO’s style? The biggest challenge I’ve had over the years sitting on other boards is trying to figure out the line of proper governance between being a director and being a CEO. My natural instinct is to speak up, to define and solve problems.

pages: 713 words: 203,688

Barbarians at the Gate: The Fall of RJR Nabisco
by Bryan Burrough and John Helyar
Published 1 Jan 1990

Horrigan tried to make it simple for him. For one thing, he said, think about how all this will look to the board. How on earth could the management group maintain it was trying to serve shareholder value if it was cutting a deal with Kravis that would no doubt hold down the company’s selling price? “The board will shove it right up our butt,” Horrigan declared. Johnson disagreed. With the $90 floor established by Kravis, shareholder value had already been served. Now, he said, it was important to make sure this bidding contest didn’t get out of control, that it didn’t get to the point where the debt they piled on would make it impossible to run the company.

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“We tried to put food and tobacco businesses together, and it hasn’t worked. Diversification is not working. We are sitting on food assets that are worth twenty-two, twenty-five times earnings and we trade at nine times earnings, because we’re still seen as a tobacco company. As a result, we have studied alternative ways of increasing shareholder values.” Here, he paused. “The only way to recognize these values, I believe, is through a leveraged buyout.” There was a crashing silence. Everyone in the room knew about leveraged buyouts, often called LBOs. In an LBO, a small group of senior executives, usually working with a Wall Street partner, proposes to buy its company from public shareholders, using massive amounts of borrowed money.

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It was all about egos, Linda Robinson knew. She considered herself finely attuned to the ways of her swaggering Wall Street clients. As so often happened, Peter Cohen and Tommy Strauss and Henry Kravis and the rest had totally lost sight of their real objective, RJR Nabisco. Their disagreements had nothing to do with shareholder values or fiduciary duties. It was all a test of wills among an intensely competitive clique of macho, Park Avenue bullies in pinstripes. At this point, she was well aware, Cohen would never give in to Kravis, or vice versa. Kravis certainly wasn’t going to cut a deal with Strauss. Each was determined to be King of the Sandbox.

pages: 823 words: 206,070

The Making of Global Capitalism
by Leo Panitch and Sam Gindin
Published 8 Oct 2012

A much larger share of total corporate profits now went to the financial sector: between 1960 and 1984, the financial sector’s share of domestic corporate profits averaged 17 percent; from then through 2007 it averaged 30 percent, peaking at 44 percent in 2002.106 In this context, there was an enormous increase in dividends paid to stockholders: dividends as a share of the profits of nonfinancial corporations averaged a steady 32 percent between 1960 and 1980; they then rose sharply, and averaged almost 60 percent between 1981 and 2007.107 The new age of finance was often portrayed as diverting corporate funds from potentially productive investment to speculative activity, forcing corporations to look for high immediate rates of return rather than longer-term growth in order to maximize “shareholder value.”108 The new age of finance certainly did involve enormous speculation, and was accompanied by much economic irrationality. Yet, as was proved in the following decade’s remarkable productivity growth in manufacturing, amid an expansion of unprecedented length, it is a mistake to see the dominance of finance in terms of speculation displacing productive activity. The greed that lay behind the assertion of shareholder value, and that drove so many of the corporate mergers and industrial closures, should not blind us to the way in which the broadening and deepening of US financial markets, including their ability to attract so much capital from abroad, expanded the availability of relatively cheap credit for US firms.

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Nevertheless these trade deficits, combined with the manifest effect of economic restructuring in industrial shutdowns and layoffs, fomented further widespread angst about “American decline.”43 An insistent theme of more critical analysts was that the new age of finance was a symptom of the failure to resolve the profitability crisis of the 1970s.44 In fact, the weakening of labor provided American capital with competitive flexibility, and the explosion of finance contributed to the restoration of general profitability, both through the disciplinary impact of the “shareholder value” precepts it sponsored within firms and through the allocation of capital across firms. Firms restructured key production processes, outsourced others to cheaper and more specialized suppliers, and relocated to the US south—all as part of an accelerated general reallocation of capital within the American economy.

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Yet the Daimler executives themselves explicitly saw it in terms of embracing “American spirit, attitude and drive” as well as flexible production methods, venture capital markets, broad distribution networks—and lower taxes.29 Since Daimler’s CEO Jurgen Schrempp had already famously “taken on board the American management values of the 1990s” by the time Daimler-Benz (whose main shareholder was Deutsche Bank) acquired Chrysler in 1998, this “confirmed the survival of German industrial muscle but it was the very reverse of European over American managerialism.”30 Schrempp’s popularization of “shareholder value” was explained by his successor, Dieter Zetsche, as being “one of the mechanisms for putting pressure” on Daimler managers and workers to stay competitive, while its “short-termist” drawbacks were seen as inevitable in light of the fact that “the American system is now more or less a world-wide system.”31 US banks and MNCs were themselves major players in the corporate mergers and acquisitions in Europe that were so important to regional integration.

pages: 131 words: 41,052

Why Europe Will Run the 21st Century
by Mark Leonard
Published 4 Sep 2000

Many Americans see the European economy as the business equivalent of a hippy commune – mired in the 1970s, unable to reform because of the cacophony of voices that erupt every time a decision needs to be made, and more interested in soft-headed ideas of quality of life than economic performance. They argue that it will not succeed until it emulates the USA with lower taxes, less social protection, a smaller state, and a narrow focus on shareholder value. There is just one problem with this conventional wisdom – it is not supported by the facts. Sweden is no longer the country of Björn Borg, Abba, Pippi Longstocking, bad porn movies, and worse haircuts. Its new economic icons are world-beating companies like Ikea, Ericsson, Volvo, Saab, Absolut Vodka, Astra Zeneca, and Hennes & Mauritz.

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The reason for this is that they have shifted from having passive welfare states that provide a safety net for the sick to active ones that turn the State into a motor of opportunity. The final misapprehension is that Europe’s companies are underperforming because they balance their commitment to shareholder value with responsibilities to their staff and the wider community. Many of the biggest companies in the world are in fact European: 61 of the 140 biggest companies on the Global Fortune 500 rankings come from Europe (compared to 50 from the USA and 29 from Asia).15 And in key sectors – energy, telecoms, aeroplanes, commercial banking, and pharmaceuticals – it is European companies that are setting the pace for global business.

pages: 304 words: 80,965

What They Do With Your Money: How the Financial System Fails Us, and How to Fix It
by Stephen Davis , Jon Lukomnik and David Pitt-Watson
Published 30 Apr 2016

Some scholars assert that institutional investors are not technical owners of public companies even though they own company stock. Lynn A. Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public (Berrett-Koehler Publishers, 2012). Others such as Yale Law School’s Jon Macey counter that shareowner value is the default objective of public corporations regardless of the legal distinction. See a May 1, 2013, debate at the American Enterprise Institute at www.aei.org/events/2013/05/01/shareholder-value-theory-myth-or-motivator/. 4. Keith Ambachtsheer, Ronald Capelle, and Hubert Lum, “The Pension Governance Deficit: Still with Us” (Social Science Research Network, 2008), http://papers.ssrn.com/sol3/papers.cfm?

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This book uses the term “owner” to describe the relationship an investor has with a public company when that investor holds one or more shares in the firm. However, it should be noted that some scholars assert that investors are not technically “owners” of public companies but only of the stock. Lynn A. Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public (Berrett-Koehler, 2012). In practice, market participants, and many courts, commonly treat investors effectively as owners. 26. Deputy Prime Minister Nick Clegg, Mansion House Speech, January 16, 2012, www.gov.uk/government/speeches/deputy-prime-ministers-speech-at-mansion-house. 27.

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Big Business: A Love Letter to an American Anti-Hero
by Tyler Cowen
Published 8 Apr 2019

Murphy found that for large American companies, if a CEO creates $1,000 in shareholder value, that CEO is likely to receive rewards of about $3.25 in return. This 1990 result is now out of date, it did not cover all forms of compensation, it has been revised, and furthermore it covers only gains at the margin rather than the CEO contract as a whole, and thus there are disparities with the results discussed in the text. Since the Jensen and Murphy paper was published, the use of stock options has risen rapidly, bringing CEO incentives closer into line with the shareholder value they create. According to some later estimates, CEOs capture four times more, in percentage terms, of the corporate value they create, or maybe more.

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Hare, Robert D. Without Conscience: The Psychopaths Amongst Us. New York: Guilford Press. Hart, Oliver D., and John Moore. 1990. “Property Rights and the Nature of the Firm.” Journal of Political Economy 98, no. 6 (December): 1119–1158. Hart, Oliver, and Luigi Zingales. 2016. “Should a Company Pursue Shareholder Value?” Working paper, October 2016. Hartmann, Thom. 2010. Unequal Protection: How Corporations Became “People”—and How You Can Fight Back. San Francisco: Berrett-Koehler. Hauser, Christine, and Sapna Maheshwari. 2006. “MetLife Grounds Snoopy. Curse You, Red Baron!” New York Times, October 20, 2006.

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Super Founders: What Data Reveals About Billion-Dollar Startups
by Ali Tamaseb
Published 14 Sep 2021

Boyer, a pioneer in the field of recombinant DNA, agreed to commercialize the technology. Genentech kick-started the modern biotech industry, was the first company to produce synthetic insulin for diabetic patients, and later invented many of the critical drugs patients use today.6 Genentech eventually amassed massive shareholder value and was acquired for $47 billion in 2009. Ideation is an essential part of every startup. There’s a cliché that ideas are a dime a dozen, but executing to get to the right idea is actually key to success. If you are going to dedicate the next ten years of your life to your startup, you will want to spend enough time initially to validate it as a concept worth working on.

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Both low CapEx and high CapEx companies can reach multibillion-dollar outcomes. Although in my dataset the high CapEx billion-dollar startups were on average 25 percent less capital efficient than low CapEx ones, many capital-intensive startups became very successful companies, generating billions of dollars in shareholder value and creating lifesaving drugs, medical systems, or new transportation modes. SaaS companies have the potential to be, and normally are, more capital efficient, but not always. They have the potential to be among the most capital-efficient and the least capital-efficient startups, depending on how they are managed.

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Billion-dollar companies created defensibility through engineering—the expertise and amount of time and work needed to build a product—but also through network effects, scale, brand, and intellectual property. Those with network effects were more likely to become billion-dollar companies. • Venture capital is relatively new in the history of financing new businesses, but it has an outsized impact. Venture-backed startups have created trillions of dollars in shareholder value and comprise a large proportion of the stock market. About 10 percent of billion-dollar startups were bootstrapped or self-financed. GitHub, Atlassian, UiPath, and Qualtrics all bootstrapped for at least four years. • Venture capital has an unintuitive math behind it, and the power laws of startup outcomes dictate why VCs prefer risky startups with massive potential to lower-risk startups with less perceived upside.

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The Wrecking Crew: How Conservatives Rule
by Thomas Frank
Published 5 Aug 2008

Who will stand up for the liberal state when there are hundred-thousand-fold returns to be made from wrecking it? Money gravitates to right-wing pressure groups like Norquist’s—as well as the Club for Growth, and the Chamber of Commerce—because that is the rational thing for money to do. That’s how you deliver shareholder value. And the conservative movement delivered. But in order to do so, it had to put itself through a remarkable metamorphosis. * * * *According to progressive lore, the Vanderbilt family’s personal public servant was Chauncey Depew, a senator from New York from 1899 to 1911. “Everyone knew he was the Vanderbilts’ creature,” wrote David Graham Phillips in The Treason of the Senate, pp. 72–73.

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For average citizens this arrangement made for the greatest period of mass prosperity in the nation’s history. For conservatives, though, it was an intolerable state of affairs, and the upper stratum of society watched as its cut of the nation’s wealth fell to its lowest level ever in the mid-seventies.14 The point of the business enterprise is to maximize shareholder value, they started to scream, nothing else. Schemes to return the corporation to the free-market paths of righteousness and profitability have danced through the conservative imagination ever since. The list of innovations designed to discipline the corporation—to force managers to concern themselves solely with profit—is long and getting longer every day: leveraged buyouts, stock options for senior management, shareholder revolts, stock buybacks, mergers, spinoffs, downsizing, outsourcing, and offshoring, to name a few.15 Lobbying could be a valuable weapon in the war for profit, but conservatives had apparently lost sight of its potential.

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See also specific individuals and lobbying firms adversarial fantasy of antigovernment cynicism of attack on government by, as corrupt attack on regulations by appointees of “bad apples” and business capture of government and CNMI as result of rule by College Republicans and rise of debt as weapon of economic optimism of “freedom fighter” ideal of free-market paradises of image of, as rebels and outsiders as industry Iran-Contra and leaders of, as imposters lobbyists and loss of congressional majority by Loudoun County and maximizing shareholder value and mimicking of enemies and misrule by, as consequence of antigovernment philosophy of permanent defeat of liberalism as goal of profits made from activism by revolution vs. liberals and moderates revolving door and South Africa and uprising vs. moderate republicans by Conservative Student Support Foundation Conservative Youth Federation of America conspiracy theories Constitution Party consumer groups Consumer Product Safety Commission container deposit laws contractors “Contract with America” convict labor Coors Copulos, Milton “corporate conscience” movement corporations corruption.

pages: 726 words: 172,988

The Bankers' New Clothes: What's Wrong With Banking and What to Do About It
by Anat Admati and Martin Hellwig
Published 15 Feb 2013

Therefore, the required ROE, which we introduced in Chapter 7 as a benchmark return that shareholders expect to receive on average, is also lower when banks have more equity. If the decrease in average ROE and the decrease in required ROE are the same, the compensation shareholders receive is still sufficient for the risk they bear. Shareholders are harmed only if the average ROE actually decreases by more than the required ROE. Target ROE and Shareholder Value Bankers often set high figures for target ROE that they promise their shareholders they will try to achieve. They also tell politicians, regulators, and the public that shareholders “require” them to strive to hit these targets. In the years before the financial crisis, Josef Ackermann, the CEO of Deutsche Bank from 2002 to 2012, repeatedly announced that an ROE of 25 percent before taxes was the benchmark for a competent investment bank and that Deutsche Bank was aiming to meet this benchmark, at least on average, over a number of years.12 On a more modest scale, Bob Diamond, CEO of Barclays from 1996 to 2012, announced in April 2011 that he was targeting a 13 percent ROE by 2013.13 These statements presume that ROE is a meaningful measure of performance and that it makes sense to set benchmarks and targets for ROE.

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In the years before the financial crisis, Josef Ackermann, the CEO of Deutsche Bank from 2002 to 2012, repeatedly announced that an ROE of 25 percent before taxes was the benchmark for a competent investment bank and that Deutsche Bank was aiming to meet this benchmark, at least on average, over a number of years.12 On a more modest scale, Bob Diamond, CEO of Barclays from 1996 to 2012, announced in April 2011 that he was targeting a 13 percent ROE by 2013.13 These statements presume that ROE is a meaningful measure of performance and that it makes sense to set benchmarks and targets for ROE. However, if no account is taken of how much debt has been taken to create leverage and, more generally, of the risk of the equity per dollar invested, ROE is not a meaningful measure of performance, nor does it measure shareholder value. If no account is taken of the market environment, such as market rates of interest, comparison of ROE with a given benchmark is also not meaningful. Implying otherwise is another article of the bankers’ new clothes. Mr. Ackermann’s 25 percent would have meant something different at a time when the interest rate on long-term bonds was 6 percent than it does at a time when this interest rate is at 2 or 3 percent.

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Haldane (2012b) compared the mentality of bankers, the desire to “keep up with the Goldmans,” to that of elephant seals who compete, in a “winner-takes-all” manner, to mate with all the females, in the process becoming excessively bloated. Competition between banks to achieve higher returns has led banks to take more risk and to use more leverage. 31. See, for example, “Citi Chief on Buyouts: ‘We’re Still Dancing,’ ” New York Times, July 10, 2007. 32. For a skeptical view of the shareholder value concept, see Stout (2012). On governance problems, including ineffective boards that often lack expertise, see Pozen (2009, Chapter 11), Smith (2010, Chapter 7), Allison (2011, loc. 474), and Stanton (2012, Chapter 4). Mayo (2011, loc. 3226–29) states, “Boards are typically responsible for three things: (1) hiring a CEO and evaluating that person’s compensation and performance; (2) setting an overall risk appetite at the bank; and (3) providing the company with some kind of independent oversight.

pages: 436 words: 141,321

Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness
by Frederic Laloux and Ken Wilber
Published 9 Feb 2014

Teal practices unleash tremendous energies; when these energies meet a noble purpose and a deep hunger in the world, how could anything but growth ensue? Profit Shareholder value has become the dominant perspective of Orange Organizations. It states that corporations have one overriding duty: to maximize profits. In many countries, this perspective is legally binding; management can be sued for decisions that jeopardize profitability. Under the spell of shareholder value, public companies focus relentlessly on the bottom line. Profits and losses are forecasted month-by-month, quarter-by-quarter, and every element that could increase or reduce the bottom line is analyzed and analyzed some more.

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and the very titles of the books reveal what most leaders today believe to be the primary objective in business: being successful, beating the competition, and making it to the top.120 With that perspective, profit and market share are the name of the game. It’s the essence of the shareholder model: the manager’s duty is not to serve some purpose in the world, but to maximize shareholder value. More recently, we’ve seen the emergence of a new perspective, the stakeholder model, which insists that companies have to answer not only to investors, but also to customers, employees, suppliers, the local community, the environment, and others. An organization’s leadership must mediate between the often-conflicting needs of stakeholders, so that everybody is satisfied in the long run.

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They face the prospect of civil claims if they stray from their fiduciary duties by taking environmental or social concerns into account at the expense of shareholders. The duty of directors of B-Corps is extended to include non-financial interests, such as social benefit, concerns of employees and suppliers, and environmental impact. To put it in different words, where C-Corps are based on the (Orange) notion of shareholder value, B-Corps stem from the (Green) concept of stakeholder perspective. In B-Corps, a special provision requires at least two-thirds or more of the votes on the board for changes of control, structure, or purpose. These provisions offer some protection to entrepreneurs who wish to raise capital but fear losing control of their business’s social or environmental mission.

pages: 511 words: 132,682

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants
by Maurice E. Stucke and Ariel Ezrachi
Published 14 May 2020

Beginning in the late 1970s, such protections were gradually stripped away as the competition ideology, like kudzu, took over and smothered everything in its path—including the social, moral, and ethical values that might have mitigated its pernicious effects. Over the past forty years lobbyists, powerful firms, and ideologues have pushed for free market solutions, unmonitored and unregulated, even for services—like prisons—that are particularly ill-suited to an ideology that puts profits and “shareholder value” ahead of all other values. Politicians and policy makers promoted competition as the panacea for nearly every societal ill, while striving both to dismantle existing regulations and to resist any new ones, all in the name of avoiding “regulatory creep”—that supposedly lethal blow to the free market.

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What values does your company promote? What values and traits of your company’s corporate culture will help it in achieving its social purpose? What values and traits will get in the way of its social purpose? One common complaint is that companies have lost any sense of purpose beyond maximizing profits and, where applicable, shareholder value. Neither their executives nor their employees can identify any other kind of purpose—and many are not interested in doing so. One extreme example is an investment bank that once took pride in its ethical organizational culture. Servicing its clients’ interests was paramount. But in one of the more famous resignation letters, Greg Smith, a Goldman Sachs executive director, described how toxic competition had eroded the financial institution’s once-prized culture: How did we get here?

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A 2019 study by Bates College and Gallup found that 80 percent of college graduates affirm the importance of finding purpose in their work, but less than half report having it.48 Consequently, Bates College, through its Center for Purposeful Work, is preparing its students “for lives of meaningful work [which] lies at the heart of the liberal arts mission.”49 But don’t we want companies to maximize shareholder value, as opposed to prioritizing these other social purposes? It wasn’t on the top of either the Deloitte or Harvard surveys. Instead the top social purposes were having a meaningful impact on clients/customers, and providing business services and/or products that benefit society. The fact that generating financial returns is relatively low on the priority list doesn’t mean that purpose-driven companies aren’t successful.

pages: 611 words: 130,419

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

The terms leveraged buyouts and corporate raiders also went viral in the 1980s, often in admiring stories about companies that responded well to true incentives and that produced high profits as a result. One marker for such stories is the phrase maximize shareholder value, which, according to ProQuest News & Newspapers and Google Ngrams, was not used until the 1970s and whose usage grew steadily until the twenty-first century. The phrase maximize shareholder value puts a nice spin on questionable corporate raider practices, such as saddling the company with extreme levels of debt and ignoring implicit contracts with employees and stakeholders. Maximize suggests intelligence, science, calculus.

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Shareholder reminds the listener that there are people whose money started the whole enterprise, and who may sometimes be forgotten. Value sounds better, more idealistic, than wealth or profit. Use of the three words together as a phrase is an invention of the 1980s, used to tell stories of corporate raiders and their success. The term maximize shareholder value is a contagious justification for aggressiveness and the pursuit of wealth, and the narratives that exploited the term are most certainly economically significant. The Laffer Curve, Supply-Side Economics, and Narrative Constellations After the Laffer curve epidemic, the Reagan administration (1981–89) reduced the top US federal income tax bracket from 70% to 28%.

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See labor-saving machinery narrative “The Machine Stops” (Forster), 181 Mackay, Charles, 59, 119 MacMullen, Ramsay, 14 Malabre, Alfred L., Jr., 202 Mallon, Mary, 20 Mann, Dorothea Lawrence, 60 Marden, Orison Swett, 122 marketers: contagion rate engineered by, 60; lowering the forgetting rate, 62; profiting from narratives, xiii, 62; recurrence of narratives due to, 109–10 marketing: with accelerated analytics, 20; appeals to patriotism in, 155; background music and, 67; bizarre mental images in, 46; book jackets and, 60–61; contagion of economic narratives and, 60–63, 297; detested by many consumers, 62; focus group methods developed for, 283; logos and, 62–63, 148; self-referencing in, 77; social media used for, 274–75; of “the news,” 61–62 Marx, Groucho, 133 Marx, Karl, 102 master narrative, 92 master plots in fiction, 16 maximize shareholder value, 47–48 May, John Allan, 38 McCall, Samuel W., 168 McCormick, Anne O’Hare, 140, 143 McGinn, Daniel, 217–18 McKinley, William, 163, 164, 171, 313n29 McQuiggan, Scott W., 77–78 Meany, George, 202 “Measurement without Theory” (Koopmans), xv Meeker, Royal, 245 Mellon, Andrew, 44 Meloney, Marie, 220 memes, 60, 88 Memoirs of Extraordinary Popular Delusions (Mackay), 59, 119 memory: aided by rituals and symbols, 62; aided by visual stimuli, 45, 46–47; collective, 60; contagion of narratives and, 252; fear-related brain circuitry and, 57–58; flashbulb memory, 80–83, 233, 307n13; source monitoring in, 84, 307n21.

pages: 366 words: 94,209

Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity
by Douglas Rushkoff
Published 1 Mar 2016

If a company is depending entirely on quarter-over-quarter growth in order to deliver value to its shareholders, it is in a much more precarious position—particularly in a contracting economy—than a company that has managed to achieve sustainable prosperity. It’s one thing to grow. It’s another to be dependent on growth in order to pay back debts and generate shareholder value. Or, worse, to simply promise that real earnings are coming at some point in the future. The disproportionate emphasis on share price is magnified further by our increasingly digital stock exchanges. Algorithms can trade only on changes in share price. They depend on volatility, not consistent returns.

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Yes, such corporations bail some water out of the sinking ship, but they are, themselves, the cause of the leak. In fact, none of these new corporate structures addresses the central flaw that precedes each of runaway capitalism’s social, environmental, or economic excesses: the idea that more profit equates to more prosperity. Profit might lead to more shareholder value, but it doesn’t necessarily maximize the wealth that could be generated by the enterprise over the long term and for everyone involved—even its founders. That’s why the not-for-profit, or NFP, might ultimately be the best model for the future of enterprise on a digital landscape. Many mistake the term “nonprofit” (as the not-for-profit is also called) to mean “charity” or “volunteer.”

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Foster, “Two Routes to Resilience,” Harvard Business Review, December 2012. 50. Field Maloney, “Is Whole Foods Wholesome?” slate.com, March 17, 2006. 51. Lynn Forester de Rothschild, “Capitalists for Inclusive Growth,” project-syndicate.org, April 17, 2013. 52. Ibid. 53. Ibid. 54. Steven Pearlstein, “How the Cult of Shareholder Value Wrecked American Business,” washingtonpost.com, September 9, 2013. 55. Oliver Staley and Hui-Yong Yu, “Hilton Sells Itself to Blackstone for $20 Billion,” bloomberg.com, July 4, 2007. 56. Henry Sender, “How Blackstone Revived Hilton Brand,” ft.com, August 19, 2013. 57. David Gelles, “A Surprise from Hilton: Big Profit for Blackstone,” nytimes.com, December 12, 2013. 58.

pages: 355 words: 92,571

Capitalism: Money, Morals and Markets
by John Plender
Published 27 Jul 2015

I can assure you that we CEOs of today are not ten times better than those of twenty years ago. What happened? Sadly, all too many members of the inner circle of the business elite participated in the over-expansion of executive compensation. It was justified by a claimed identity between the motivation of the executives and shareholder value. It is reasonably clear now that this theory has left a large number of poorer stockholders, especially including employee stockholders, not only unconvinced, but understandably disillusioned and angry. The policy of vastly increasing executive compensation was also, at least with the brilliant vision of hindsight, terribly bad social policy and perhaps even bad morals.42 A similar if less spectacular progression was under way in Europe.

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Given the choice, many executives in the Anglo-American world, whose average tenure at the top has shrunk to very short time periods in recent years, appear to be choosing to invest in share buybacks in preference to plant and machinery. So while bonuses have been going up as these people seize their brief window of opportunity, business investment as a percentage of GDP has been on a persistent declining trend in the US and UK.219 This is a travesty of shareholder value, the supposed objective of modern managers who run publicly quoted companies. It reflects a huge and egregious corporate governance vacuum – another profound imbalance at the heart of modern capitalism. Institutional investors have done little to prevent a pattern of behaviour that damages the long-term value of their investments.

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Chilton 1 railway mania (Britain 1840s) 1 Rajan, Raghuram 1, 2, 3, 4 Rand, Ayn 1, 2 Raphael 1 Reading, Brian 1, 2, 3, 4 Reagan, Ronald 1, 2, 3, 4, 5 Reformation 1, 2 regulators 1 regulatory arbitrage 1 Renaissance 1, 2, 3 Republic (Plato) 1, 2 retail banking 1 Reynolds, Joshua 1, 2 Ricardo, David 1 Richelieu, Cardinal 1 Ring of the Nibelung (Wagner) 1, 2, 3 Ritblat, John 1 Roaring Twenties 1, 2 robber barons 1, 2, 3 Robinson Crusoe (Daniel Defoe) 1 Rockefeller, John D. 1, 2 rogue traders 1 Rolls-Royce 1 Roman republic 1 Roosevelt, Franklin 1 Rosenberg, Harold 1 Roseveare, Henry 1 Roubini, Nouriel 1 Rousseau, Jean-Jacques 1, 2 de Rouvroy, Claude-Henri 1 Royal Exchange (London) 1 Rubens, Peter Paul 1, 2 rural exodus 1 Ruskin, John 1, 2, 3 Saatchi, Maurice 1, 2 Samuelson, Paul 1 Sandel, Michael 1 sarakin banks (Japan) 1 Sarkozy, Nicolas 1 Sassoon, Donald 1 Satyricon (Petronius) 1 Savage, Richard 1, 2 Schama, Simon 1, 2 Schiller, Friedrich 1 Scholes, Myron 1 Schopenhauer 1 Schuman, Robert 1 Schumpeter, Joseph 1, 2, 3, 4, 5, 6, 7 Schwed, Fred 1, 2 second industrial revolution (1920s) 1 Sen, Amartya 1 separation of powers 1 Shakespeare 1, 2, 3, 4, 5, 6 shareholder activists 1 shareholder value 1 shareholders 1 Shaw, George Bernard 1 Sherman Antitrust Act (US 1890) 1 Shiller, Robert 1, 2, 3, 4 Shleifer, Andrei 1 short selling 1, 2 Siemens 1 von Siemens, Werner 1 Sinclair, Upton 1 Skidelsky, Robert 1, 2 Smith, Adam 1, 2, 3, 4, 5, 6, 7, 8 Smith, Sidney 1 Smithers, Andrew 1, 2 Smollett, Tobias 1 social democratic model 1, 2 Société Générale 1 Socrates 1 Solon 1 Sombart, Werner 1, 2 Soros, George 1, 2 Sotheby’s 1 South Sea Bubble 1, 2, 3, 4, 5, 6, 7 sovereign debt 1 sovereign debt crisis (2009) 1 Spain 1, 2, 3, 4, 5, 6 speculation 1 Spenser, Edmund 1 Stabilising an Unstable Economy (Hyman Minsky) 1 Steed, Wickham 1 Stephenson, George 1 Stevens, Wallace 1 Streeck, Wolfgang 1 subprime mortgages 1, 2, 3, 4 Sutter, John 1 Sutton, Willie 1 swarf 1 Sweden 1 Swift, Jonathan 1, 2, 3 Tale of Two Cities (Charles Dickens) 1 Taleb, Nassim Nicholas 1, 2 Talleyrand, Charles Maurice de 1 Taoism 1 tax farming 1 tax havens 1 tax revolts 1 taxation 1 Taylor, John 1 Tea Party movement 1 Tennyson, Alfred 1 Thaler, Richard 1 Thatcher, Margaret 1, 2, 3, 4, 5, 6 Theory of Moral Sentiments (Adam Smith) 1 ‘thingism’ 1 Thomas Aquinas 1, 2 Thompson, E.

pages: 330 words: 91,805

Peers Inc: How People and Platforms Are Inventing the Collaborative Economy and Reinventing Capitalism
by Robin Chase
Published 14 May 2015

Federal Communications Commission rulings have pushed us ever closer to living that reality: In 2014, 85 percent of Americans had just one or two broadband service providers to “choose” among).4 The private sector can finance it. Advocates for pure unregulated capitalism, where the only thing that matters is money, will build platforms that maximize shareholder value. If platforms are funded and run to please traditional private sector investors, particularly those looking for short-term gains, things that have no financial value (known as externalities), such as social benefits and environmental damages, won’t enter into the calculation. The power and income inequality that exists today will likely continue, and the innovation potential of Peers Inc will fall short.

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The power and income inequality that exists today will likely continue, and the innovation potential of Peers Inc will fall short. These platforms will lead short (if profitable) lives. “Benevolent dictators” are cited as an alternative to bottom-line-focused CEOs. Google and Facebook come to mind. Their founders were able to retain majority control, giving them leeway to manage far more than simple shareholder value. CEOs who choose to deliver on a triple bottom line (people, planet, profit) are great … except that they eventually have to leave. Google’s motto “Don’t be evil” is only as good as Larry Page’s interpretation of it. And even benevolent dictators are still dictators. A few companies—including Zipcar, in my opinion, but also BlaBlaCar and Etsy—will always deliver significant social and environmental benefits no matter how they are financed or who runs them, because they necessarily deliver positive externalities.

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Gruen then asked us to think about Google, Facebook, and Twitter. They are free and open to everyone. No matter how many people partake in them, they can’t be used up. Here, I thought, was a striking insight: The private sector is beginning to see that investments in maximally open platforms have the potential to deliver the greatest shareholder value. Then Gruen said something remarkable: “Private companies are delivering important public goods. Public goods are assembling themselves without the government.”24 Consider Bitcoin’s creation of a currency, an activity that we really thought was in the government purview. As Nicholas puts it, there is a spectrum of possibility as to how public goods get created, ranging from voluntary, opt-in “emergent public goods” to those that are protected through coercion (rules, regulations, and taxes).

pages: 307 words: 94,069

Switch: How to Change Things When Change Is Hard
by Chip Heath and Dan Heath
Published 10 Feb 2010

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The problem with “maximize shareholder value,” despite its accuracy, is that it doesn’t help the flight attendant decide whether to serve chicken salad. An accurate but useless idea is still useless. We discussed the Curse of Knowledge in the introduction — the difficulty of remembering what it was like not to know something. Accuracy to the point of uselessness is a symptom of the Curse of Knowledge. To a CEO, “maximizing shareholder value” may be an immensely useful rule of behavior. To a flight attendant, it’s not. To a physicist, probability clouds are fascinating phenomena. To a child, they are incomprehensible. People are tempted to tell you everything, with perfect accuracy, right up front, when they should be giving you just enough info to be useful, then a little more, then a little more.

pages: 619 words: 177,548

Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity
by Daron Acemoglu and Simon Johnson
Published 15 May 2023

Digital technologies automated work and disadvantaged labor vis-à-vis capital and lower-skilled workers vis-à-vis those with college or postgraduate degrees. This redirection cannot be understood without recognizing the broader social changes taking place in the United States. Businesses became better organized against labor and government regulations, but even more importantly, a new vision maintaining that maximizing profits and shareholder values was for the common good became an organizing principle for much of society. This vision, and the massive enrichment it offered, pushed the tech community in a direction very different from the one envisaged by the early hackers. The new vision was of a “digital utopia,” based on the top-down design of software to automate and control labor.

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Jensen maintained that these managers needed to be controlled more tightly, but because that was difficult, the more natural path was to have their compensation tied to the value they created for shareholders. This meant giving managers big bonuses and stock options in order to focus them on boosting the company’s stock price. The Friedman doctrine, along with the Jensen amendment, brought us the “shareholder value revolution”: corporations and managers should strive to maximize market value. Unregulated markets, combined with the productivity bandwagon, would then work for the common good. The Business Roundtable agreed and suggested that citizens should be educated in “economics” because greater economic knowledge would make them more favorable to business and supportive of policies such as lower taxes that would boost economic growth and benefit everybody.

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For managers inculcated in business schools, this number is zero. Somewhat disappointingly for business schools and for economists from the Friedman-Jensen school, there is no evidence that business school‒trained managers increase productivity, sales, exports, or investment. But they do increase shareholder value because they cut wages. They also pay themselves more handsomely than other managers. Resistance to the New Deal, accompanied by the antiregulation, antilabor philosophical stances of some business executives and the Friedman doctrine, was not enough, however. In the early 1970s, wholesale deregulation and dismantling the labor movement were fringe ideas, even if more businesses were becoming vocal about the burdens of growing regulations.

pages: 976 words: 235,576

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite
by Daniel Markovits
Published 14 Sep 2019

A review of the many complementary factors that favor debt-financed buybacks (including the connections to shareholder activism to restraints on managerial inclinations to serve other stakeholders) appears in Joan Farre-Mensa, Roni Michaely, and Martin C. Schmalz, “Financing Payouts,” Ross School of Business Paper No. 1263 (December 2016), 31–37. “separation of ownership and control”: See Adolph Berle and Gardiner Means, The Modern Corporation and Private Property (New York: Macmillan, 1932). maximize shareholder value: The term “shareholder value” was introduced by the lawyer-economist Henry Manne in his classic article “Mergers and the Market for Corporate Control.” See Henry Manne, “Mergers and the Market for Corporate Control,” Journal of Political Economy 73, no. 2 (April 1965): 110. Note that the date of publication comes at the twilight of the Great Compression.

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Where the midcentury firm’s insulation from the capital markets had been so effective that “separation of ownership and control” became the organizing ideal of midcentury management, the contemporary firm’s capital structure makes management intensely accountable to activist investors. Second, new legal technologies created the market for corporate control that takeover artists might deploy—routinely rather than just in exceptional cases—to discipline management that failed to maximize shareholder value. The discipline came through many mechanisms, including perhaps most importantly the leveraged buyout—an arrangement whereby an acquirer seeking to take over a firm uses the target firm’s own assets to secure a loan to buy the target’s shares. Beginning in the 1980s, leveraged buyouts acutely increased the pressure that potential takeovers placed on incumbent managers.

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At the same time, the market for corporate control creates exceptionally high-powered incentives for top managers: investors can monitor top managers’ performance and apply both carrots (stock- and option-based pay packages) and sticks (the threat of being ousted) to induce a firm’s leadership to maximize shareholder value. This logic casts managerial discretion among non-elite workers as a cost to shareholders, and at the same time casts managerial capacity among a firm’s elite, if properly incentivized, as a benefit. The market for corporate control therefore induced precisely the innovations in managerial technology that displaced the midcentury regime’s widely dispersed management function in favor of the present-day practice of concentrating management at the very top of flattened corporate hierarchies.

One Up on Wall Street
by Peter Lynch
Published 11 May 2012

I invested in the Johns-Manville turnaround but sold at a modest loss after realizing there was no way to predict the extent of that company’s liability, either. There’s the perfectly-good-company-inside-a-bankrupt-company kind of turnaround, such as Toys “R” Us. Once Toys “R” Us was spun out on its own, away from its less successful parent, Interstate Department Stores, the result was 57 bags. There’s the restructuring-to-maximize-shareholder-values kind of turnaround, such as Penn Central. Wall Street seems to favor restructuring these days, and any director or CEO who mentions it is warmly applauded by shareholders. Restructuring is a company’s way of ridding itself of certain unprofitable subsidiaries it should never have acquired in the first place.

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Weinberg was buying, and the stock hit a high of $32 before it was marked down to $16 in the October, 1987, sell-off. Seven months later it was back up to $30. The same thing happened at Storer Broadcasting, and then at Disney. Disney was a sleepy company that didn’t know its own worth until Mr. Steinberg came along to goad management into “enhancing shareholder values.” The company was making progress anyway. It’s done a brilliant job moving away from animated movies to appeal to a broader and more adult audience. It’s been successful with the Disney channel and the Japanese theme park, and the upcoming European theme park is promising. With its irreplaceable film library and its Florida and California real estate, Disney is an asset play, a turnaround, and a growth company all at once.

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With its irreplaceable film library and its Florida and California real estate, Disney is an asset play, a turnaround, and a growth company all at once. No longer do you have to wait until your children have children for hidden assets to be discovered. It used to be that you could sit on an undervalued situation your entire adult life and the stock wouldn’t budge a nickel. These days, the enhancement of shareholder values happens much quicker, thanks to the packs of well-heeled magnates roving around looking for every last example of an undervalued asset. (Boone Pickens came to our office a few years ago and told us exactly how a company such as Gulf Oil could hypothetically be taken over. I listened to his well-reasoned presentation, then promptly concluded that it couldn’t be done.

pages: 391 words: 102,301

Zero-Sum Future: American Power in an Age of Anxiety
by Gideon Rachman
Published 1 Feb 2011

In the nine months after the fall of Lehman Brothers, governments all over the world poured in over $100 billion in direct or indirect aid to keep car plants running.31 In extraordinary circumstances and facing extraordinary pressures, many of the assumptions about business and economics that had prevailed for the previous thirty years were tossed overboard. “Shareholder value,” the doctrine that companies should be managed above all in the interests of their shareholders, had been accepted business wisdom for decades. But suddenly Jack Welch, the most revered American manager of his age and the foremost champion of shareholder value, popped up to announce that it was “a dumb idea.”32 The notion that the market should be allowed to set pay was abandoned. As it became conventional wisdom that the financial crash had been caused, at least in part, by incentives to take excessive risks, so governments all over the world moved to regulate bankers’ pay.

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Piergiorgio Alessandri and Andrew Haldane, “Banking on the State,” Bank of England, November 2009. Available from http://www.bankofengland.co.uk/publications/ speeches/2009/speech409.pdf. 31. John Reed, “Back on the road,” Financial Times, June 18, 2009. 32. Francesco Guerrera, “Welch condemns shareholder value focus,” Financial Times, March 12, 2009. 33. Charles Grant, “Liberalism Retreats in China,” Centre for European Reform, London, July 2009. 34. Geoff Dyer and Guy Dinmore, “GE Chief Gives Vent to Frustration Over China,” Financial Times, July 15, 2010. 35. Ian Bremmer, “State Capitalism Comes of Age: The End of the Free Market?

pages: 372 words: 101,678

Lessons from the Titans: What Companies in the New Economy Can Learn from the Great Industrial Giants to Drive Sustainable Success
by Scott Davis , Carter Copeland and Rob Wertheimer
Published 13 Jul 2020

Until a better measure is found, shareholder value and its hypercorrelation to survival will reign as our metric of choice. We don’t ignore other stakeholders, and in fact at times we’ll emphasize the importance of one over others, but only when it’s crucial. The successes of key stakeholder groups are not mutually exclusive. The reality is that companies that find long-term success nearly always focus intensely on customer needs, treat suppliers as partners, consider employees as their biggest asset, and invest in their communities. We find little evidence to the contrary. But shareholder value must be front and center.

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Welch’s final move was selecting his successor, a fateful decision that has historians now questioning much of Welch’s legacy in its entirety. While Welch remained quiet during most of GE’s eventual decline, he would later admit that he was “deceived”—a comment that offers little solace to those who suffered from the largest destruction of shareholder value in American history. Sadly, Jack Welch passed away in March 2020, before he had a chance to comment on this manuscript. Lessons from the Jack Welch Era • Attacking the cost base should be the first step in any turnaround. • Aggressive internal and external investment can coexist. • Cash flow is the best weapon in an arms race

pages: 296 words: 98,018

Winners Take All: The Elite Charade of Changing the World
by Anand Giridharadas
Published 27 Aug 2018

It rejects the notion that there are different social classes with different interests who must fight for their needs and rights. Instead, we get what we deserve through marketplace arrangements—whether fantasy football to help African orphans or office software to make everyone more productive or the sale of toothpaste to the poor in ways that increase shareholder value. This win-win doctrine took on a great deal more than Adam Smith ever had, in claiming that the winners were specially qualified to look after the losers. But what do they have to show for their efforts, given that the age of the win-win is also, across much of the West, the age of historic, gaping inequality?

…

“We sort of created a cartoon,” Porter said, “which is this view of, if you can force your employee to work overtime without paying them, then you should do it—that’s free markets, and that’s profit maximization.” Finally, Porter spoke of how the spread of the financial vernacular of the protocols had caused companies to be run more and more for the sake of shareholders rather than for workers or customers or anybody else. “When I was first teaching,” he said, “we didn’t talk about shareholder value.” What lodestars guided business back then? “I think it was: The business has to earn a good sustained return, and we’re in it for the long run, and we’re building a great company,” he said, “rather than this notion that it’s the stock market vote every day that determines whether you’re succeeding or not.”

…

Wall Streeters trained in the protocols saw their influence rise as their way of evaluating a company, and their degree of say in how it should be run, gradually took over. Porter watched this phenomenon, which is often called “financialization,” turn companies into the servants of their owners, to the detriment of other considerations. “The shareholder-value mind-set became very, very strong,” he said. People became “fixated” on it; it pulled them into “short-term” thinking; it caused decisions that might raise the stock price temporarily but actually hurt a company’s long-term prospects or its workers or customers or community. “I’ve been on a bunch of boards,” Porter said, “and I experienced it when I go to board meetings, and we worry about an hour-to-hour score, and we start listening to that scorekeeper, the capital markets, in what they think we should do.”

pages: 586 words: 159,901

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

Rajesh Aggharwal (1995) argued that that happened because creditors were unwilling to forgive enough debt to make a firm viable; they feared that if they forgave, someone else (like a nonpar-ticipating creditor) would gain what they lost. rioting rentiers The failure of the LBO movement to transform the fundamental nature of the corporate form left shareholders at a bit of a loss. Not satisfied with one of the great long-term bull markets in U.S. history, they continued to whine about "unlocking shareholder value" hidden in the crevices of corporate America. Since leverage turned out to be a very risky way of liberating those hidden dollars, a new strategy was in order. As the decade turned, that strategy turned out to be shareholder activism. Ironically, one of the early signs of the new activism was the anti-apartheid movement's pressure on universities, churches, public pension funds, and other institutional investors to sell the shares of firms doing business in South Africa.

…

During the 1980s, Pickens made relentless fun of CEOs like Andrew Sigler, the boss of Champion International who was managerial America's mouthpiece while the likes of Pickens were wilding their way across the corporate landscape. While Sigler argued that "society" owned firms, not "shareholders," Pickens countered that shareholder value was all. His oil company didn't really drill much — he preferred to explore for oil on the New York Stock Exchange, by buying up other companies with borrowed money (Henwood 1987). Companies that tried to block takeovers with poison pills and other schemes were Pickens' great enemies.-' But in 1995, Mesa found itself under attack by hostile suitors including Pickens' former sidekick David Batchelder.

…

It may be that even with the institutionalization of ownership, shareholding still remains too dispersed to sustain the kind of "relationship investing" advocated by Calpers, the Twentieth Century Fund (1992), or Robert Monks (1995). Professional rentiers and their bankers will no doubt find a new fad designed to unlock shareholder value, and devise a fresh set of arguments for why their enrichment is synonymous with the common good. Aside from Margaret Blair — though she is far more measured than I — no prominent student of corporate governance has drawn the obvious conclusion from all this research: if outside shareholders serve no useful WALL STREET purpose, then there is no better argument for turning firms over to their workers."

pages: 506 words: 146,607

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market
by Daniel Reingold and Jennifer Reingold
Published 1 Jan 2006

Bernie Ebbers, a one-time milkman and high school basketball coach in rural Mississippi, had taken a tiny long distance company and built it into MCI WorldCom Inc., the second largest telecommunications company in the world behind AT&T. He had become a billionaire, a celebrity, the CEO atop the mountain, at a time when his industry and mine—telecom—was one of the sexiest in the world. But by mid-2002, his company had collapsed in a web of lies and deception. Over $180 billion in shareholder value had evaporated. Over 30,000 WorldCom employees and nearly 200,000 others at related companies had lost their jobs in the telecom bust that followed. And Bernie had gone from a hero to a villain, his reputation as a master of the deal replaced by that of the man who presided over the biggest fraud in history.

…

Nevertheless, he did brashly add a few sentences that 99 out of 100 compliance officers would have—and should have—deleted. “From an SBC perspective, assuming this line is kept in by our lawyers,” he wrote, “we think the strategic moves they are making will clearly be additive to long-term shareholder value.”7 In effect, he had issued a buy recommendation on SBC, and even Jack thought he was going too far, hinting that that line would be deleted. But it wasn’t. In conversations with my buy-side clients, I also learned that Jack had been telling people that morning that SBC had been planning to announce a deal to purchase an unnamed startup local carrier at the same time as it announced its Ameritech acquisition.

…

But the two stocks had already moved and some investors had already profited: in the sixteen days before the Journal’s “scoop,” Sprint shares had risen by a total of $5.4 billion, or $6 3/16 per share; and WorldCom shares had dropped by $1.9 billion, or 93 cents per share. And the market value of Sprint PCS, also likely to be acquired in the transaction, rose $6.4 billion, or $6.75 per share during the same 16-day period. Together, that added up to a total of $13.7 billion of shareholder value that had changed hands, with some investors winning thanks to their inside information and others losing thanks to their lack of it. If you or your mutual fund sold shares of Sprint during that time, the buyer of your shares may have been armed with an unfair edge. Alternatively, you or your fund manager may have bought shares of WorldCom without realizing what the seller may have known—that WorldCom shares would likely fall once the deal was announced.

pages: 651 words: 161,270

Global Spin: The Corporate Assault on Environmentalism
by Sharon Beder
Published 1 Jan 1997

But in the past “these have usually been ethical or emotional funds,” whereas theirs was to be driven by profit. “It could even invest in chemical companies, or at least the greenest ones.” Their idea was that this new fund would be “marketed off the back of Sydney’s green 2000 Olympics”.43 This venture has since fallen through. The idea of increasing shareholder value by increasing environmental performance, or at least the perception of it, has been promoted by the World Business Council for Sustainable Development, an international corporate lobbying organization set up in 1990 in the lead-up to the Earth Summit. According to Joyce Nelson, author of Sultans of Sleeze: “With the able assistance of public relations giant Burson-Marsteller, a very elite group of business people (including Burson-Marsteller itself ) was seemingly able to plan the agenda for the Earth Summit with little interference from NGOs or government leaders.”44 Its members include the CEOs of Dow, DuPont, Shell, Mitsubishi, Browning-Ferris Industries and many more.

…

The Council’s 1992 book, Changing Course, quotes Ben Woodhouse, director of global environmental issues at Dow Chemical and a member of the Council’s liaison group, as pointing out that “the degree to which a company is viewed as being a positive or negative participant in solving sustainability issues will determine, to a very great degree, their long term business viability”.45 Woodhouse joined Ecos as CEO having retired after 33 years with Dow Chemical, most recently as Vice-President and Global Director of Issues Management, Crisis Management and Industry Affairs. Woodhouse received special thanks in the acknowledgments of the Council’s 1997 report, Environmental Performance and Shareholder Value, that was written by Jerald Blumberg from DuPont, Georges Blum of the Swiss Bank Corporation, and Age Korsvald of Storebrand—all corporations that featured in the report as case studies. This report promoted the idea that investors were more likely to invest in companies they believed had a better environmental record.46 This claim has since been reinforced by an Ecos study.

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Ecos claims to assist its clients to: “develop and implement business strategies which deliver competitive edge and superior financial performance through the interpretation of key environmental and social business drivers; identify specific new business opportunities and strategies to capture them; [and] increase efficiency and reduce risks and costs through advanced environmental, social and economic performance”. 49 But how real are the improvements in environmental and social performance? To what extent is shareholder value being added through communications rather than substance? Ecos has few, if any, environmental scientists and engineers who can offer environmental solutions; staff tend to be financial, public relations and communications specialists. Staff include: 50 • Michael Ward, CEO and Managing Director of Ecos, formerly media director for OzEmail, an internet provider; • Leah Barrett, former Environmental Affairs Director for TetraPak, a UK packaging company; • Sheena Boughen, an educator, formerly of mining company Placer Dome Asia Pacific; • Cath Bremner, a business analyst from multinational management consulting firm McKinsey & Co; • Sandra Davey, internet communications expert; • Victor Del Rio, “extensive experience in the television and print media industry”; • Kats Fisher, formerly Chief of Staff for US Republican congressman John Porter; • Carl Frankel, writer and journalist, formerly editor of Tomorrow magazine published by the World Business Council for Sustainable Development, WBCSD; • Suse Hahn, financial administration; • Murray Hogarth, formerly environment editor for the Sydney Morning Herald; • Rick Humphries, formerly from Greenpeace International and the Wilderness Society in Australia; • Rebecca Melkman, public relations consultant; • Blair Palese, former Head of Public Relations for the Body Shop International and Director of Communications for Greenpeace; • Don Reed, formerly Director of Corporate Engagement at the World Resources Institute, • Alan Tate, television news reporter before joining Ecos (described in public relations hyperbole in Ecos publicity material as “one of Australia’s preeminent experts in the full range of business, political and scientific aspects of climate change”); • Cathy Zoi, formerly Deputy Director and Chief of Staff of the White House Office on Environment Policy.

pages: 176 words: 55,819

The Start-Up of You: Adapt to the Future, Invest in Yourself, and Transform Your Career
by Reid Hoffman and Ben Casnocha
Published 14 Feb 2012

All plans contain these sorts of assumptions; good ones make them explicit so that you can track them over time. Essentially, you want to make explicit the things that need to be true for your plan to work. These hypotheses should lead you to specific actions. Companies often have broad missions like maximizing shareholder value, but as Jack Welch has said, maximizing shareholder value “is not a strategy that tells you what to do when you come to work every day.”4 Similarly, you may have broad aspirations, like “help interesting people do interesting things” or “design human ecosystems.” But real planning means plotting the specific steps it will take to make those aspirations happen.

pages: 326 words: 106,053

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

The problem was that people actually believed the hype, taking it for granted that putting the right individual at the top was the key to corporate success. This idea found its expression in the familiar refrain that a successful CEO such as Cisco’s John Chambers had created “$300 billion in shareholder value,” as if he had single-handedly not just given Cisco its domination of an entire technology sector but also made investors inflate Cisco’s stock price. Of course, the latter assumption was not entirely unjustified. One of the more remarkable surveys done in the 1990s, a Burson Marsteller poll, found that 95 percent of investors said that they would buy a stock based on what they thought of the company’s CEO.

…

Something like 80 percent of all new products introduced in a given year—products that CEOs presumably have signed off on—do not survive their first twelve months. Corporate profit margins did not increase over the course of the 1990s, even as executive compensation was soaring. And, tellingly, roughly two-thirds of all mergers end up destroying shareholder value, meaning that the acquiring company would have been better off never making the deal. Mergers involve a yes/no decision. They are, as a rule, decided on and initiated by the CEO (and rubber-stamped by the board of directors). They have a relatively clear outcome. And most of the time, making the deal is the wrong decision.

…

Frederick Winslow Taylor is cited in Stephan H. Haeckel, Adaptive Enterprise (Boston: Harvard Business School Press, 1999): 30. Rakesh Khurana, Searching for a Corporate Savior (Princeton: Princeton University Press, 2002). As an example, this article claims that Chambers has “created more shareholder value” than virtually any other high-tech CEO; see http://www.edgewater.com/site/news_events/in_the_news_articles/042501_VARBusiness.html. Results from the Burson Marsteller 2001 survey “Building CEO Capital” available at: http://www.bm.com/insights/ceo_rep.html. See, among others, Mark Sirower, The Synergy Trap (New York: The Free Press, 1997).

pages: 452 words: 110,488

The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead
by David Callahan
Published 1 Jan 2004

See "Pew Values Update: American Social Beliefs, 1997–1987," The Pew Research Center for the People and the Press, 20 April 1998. [back] 5. Neil Fligstein and Taek-Jin Shin, "The Shareholder Value Society: A Review of the Changes in the Working Conditions and Inequality in the U.S., 1976–2000," unpublished paper. [back] 6. David Brooks, "The Triumph of Hope," New York Times, 12 January 2003. [back] 7. On anxiety, see Robert Putnam's analysis of DDB Needham Life Style Survey data, Bowling Alone: The Collapse and Revival of American Community (New York: Simon & Schuster, 2000), 475. On job satisfaction, see Fligstein and Shin, "The Shareholder Value Society." Evidence of growing insecurity and anxiety is by no means ironclad and this remains a disputed point among scholars.

…

They are on AEI's board because their companies are among the dozens that donate handsomely to AEI, funding a steady stream of highbrow studies that trash government regulation, advocate repealing taxes on corporations and the rich, propose ways to dismantle America's social safety net—and even seek to rehabilitate social Darwinist ideas about the innate superiority of some groups of human beings over others, as AEI did when it supported Charles Murray's research for his controversial book on human intelligence, The Bell Curve. "Corporations provide important input to AEI on a wide variety of issues," admits AEI's annual report. Yet what serious think tank would want input from entities designed solely to maximize shareholder value? Self-interest is why so many corporations give money to AEI—over $5 million a year—but self-interest is antithetical to what sound scholarship is all about. Even as the American Enterprise Institute has tacked to the right over the past two decades, it remains known as one of the more reasonable conservative think tanks.

pages: 332 words: 106,197

The Divide: A Brief Guide to Global Inequality and Its Solutions
by Jason Hickel
Published 3 May 2017

Yet another option is to create new markets for investing in debt, such as the student loan industry in the United States, or to encourage consumers to spend beyond their means with credit cards. Capitalists tend to prefer such fixes because they offer faster returns – particularly for companies that are under legal pressure to maximise shareholder value.37 But some of these fixes – such as privatisation, wage reductions and wars for oil – can be difficult to achieve because they often inspire impassioned political resistance. Think of how citizens across the US and Europe mobilised to protest the invasion of Iraq in 2003, for instance; or consider the long-standing campaign in the UK to defend the public health system, for which Britons regularly take to the streets.

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If countries have bankruptcy laws that, say, protect students who default on their loans, they get punished in the rankings. Countries are rewarded when they make it easier to seize the assets of debtors, even though this removes risk from lenders and can lead to dangerously inflated debt markets.32 There is also the ‘protecting investors’ indicator, which pushes towards stronger ‘shareholder value’ laws. These laws prevent companies from doing anything that might compromise short-term profits, such as paying higher wages or giving back to the community. And the ‘registering property’ indicator pressures countries to cut regulations on buying land, adding fuel to the wildfire of corporate land grabs currently spreading across the developing world.33 The disturbing thing about these indicators is that they have no sense of balance.

…

If CEOs want to spend money to increase wages or protect the environment in a manner that results in decreased shareholder returns, they can’t, for it is effectively illegal to do so. Today, corporations are largely ruled by this imperative, which makes them much more rapacious than they otherwise might be. Abolishing it will be an important step towards giving them the space to consider other priorities. * Ditching the GDP measure and shareholder-value laws is a crucial first step, but it is not enough in and of itself. It might help us refocus our attention, but it doesn’t address the main underlying driver of growth, which is a little bit deeper and more difficult to see, and that is debt. Right now, one of the reasons our economies have to grow is because of debt.

Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time
by Howard Schultz and Dori Jones Yang

I decided to recommend to the board of directors that we expand our health-care coverage to include part-timers who worked as little as twenty hours a week. In the late 1980s, employer generosity was hopelessly out of fashion. Corporate raiders and soaring health-care costs had forced many American executives to reduce benefits. Under the prevailing mantra of “maximizing shareholder value,” CEOs were applauded by Wall Street if they cut costs and laid off thousands. Companies that did value their employees above shareholders were mocked as paternalistic and uncompetitive. They were encouraged to become more hard-nosed, to cut bloated payrolls, and to become lean and mean. White-collar workers, too, were learning the hard way that loyalty didn’t pay.

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Most plans were available only for public companies, such as outright stock grants and stock purchase programs, or for top executives, such as stock options. Privately held companies, like ours, didn’t grant stock or options because there was no market for them; their only alternative was to set up an Employee Stock Ownership Plan (ESOP). But that plan was mainly a way of raising capital. We had a different aim. My goal was to link shareholder value with long-term rewards for our employees. I wanted them to have a chance to share in the benefits of growth, and to make clear the connection between their contributions and the growing value of the company. Finally, we decided to do something novel. Even though we were a private company, we would grant stock options to every employee, company-wide, from the top managers to the baristas, in proportion to the level of base pay.

…

People started coming up with innovative ideas about how to cut costs, to increase sales, to create value. They could speak to our customers from the heart, as partners in the business. By educating our people on the importance of creating value and profits for our company, we linked them to shareholder value. Every quarter, to this day, we explain our results to them in Open Forums, allowing time for questions and answers. Sometimes they resent the fact that, as a public company, we have to focus so much on numbers. But at the end of the day, they appreciate the need to balance their individual concerns with the company’s overall performance.

pages: 403 words: 105,550

The Key Man: The True Story of How the Global Elite Was Duped by a Capitalist Fairy Tale
by Simon Clark and Will Louch
Published 14 Jul 2021

“Arif Naqvi promotes transparency, accountability, and sustainability in a world where business often spends vast resources to achieve their opposites.” For his Norwegian hosts Arif was the perfect example of an impact investor who was triumphing over Milton Friedman’s shareholder value theory of profit maximization. “He has stated that stakeholder value must be on a level with or surpass shareholder value,” the presenter said. “This is a powerful idea but one that is not mainstream in a world of business, where too often it is claimed that shareholder interests by definition must trump all others.” Arif stood on the stage, struggling under the weight of a large trophy.

…

See U.K. government British Asian Trust, 43 Bronfman, Edgar, 100–102, 290, 291 Bronfman, Hannah, 102 Brown, Gordon, 199 Bruebaker, Gary, 243 Buffett, Warren, 6, 151, 164–65, 185 Bugg-Levine, Antony, 88 Burger King, 23 Burton, Richard, 283 Bush, George W., 136, 209 Business Roundtable, 292 Cai, Jin-Yong, 150, 178 Calvin, Kathy, 208 Cameron, Alexander, 272 Cameron, David, 272 capitalism Andrew Carnegie on, 85–86 Arif Naqvi’s use of impact investing for social purposes, 2, 6, 7, 149, 291 Barack Obama’s economic peace plan and, 73 shareholder value theory of profit maximization and, 88, 89, 100, 291 Care Hospitals, 167, 179–81, 182 Carlyle, 22–23, 208 Carnegie, Andrew, 85–86, 101 Catholic Church, 89–90, 91, 148–49, 243 Cayman Islands Abraaj companies incorporated in, 54, 252, 260, 262, 279, 290 Abraaj Private Equity Fund VI registered in, 206 Arif Naqvi’s private companies in, 152, 159, 194–95, 195, 279, 285 as offshore tax haven, 293 Cayman Islands Monetary Authority, 290 CDC Group, 92–98, 182, 225, 226–27, 232, 240, 288–89 Celano, Alessandro, 285 Celebration of Entrepreneurship (November 2010), 78–82, 83 Cerberus Capital Management, 261–63 Chambers, Stephan, 133 Charles, Prince of Wales, 1, 43, 175, 291 Chaudhary, Binod, 218–19 Chávez, César, 133 Chawla, Vinay, 207 China, 4, 139–40, 186–88, 267, 269–70 Chipman, John, 105, 289 Chvatal, Andrew, 235 Citibank, 49 Citigroup, 152–53, 285 Clark, Simon Abraaj article in Wall Street Journal published, 239–40, 267 anonymous emails on Abraaj sent to, 4–5, 267–68 Kito de Boer interview, 235–36, 247–48, 294 investigator interview, 264–65 Arif Naqvi interviews, 52–53, 255–60 Arif Naqvi’s attempts to stop investigation, 237, 239 research on Abraaj, 4–6, 235, 266–67, 287–90 Sev Vettivetpillai interview, 271–72 Cleary, Sean, 105, 263, 289 Clinton, Bill, 42, 46, 98, 139, 199, 222 Clinton, Hillary, 46, 74, 81, 197, 199, 200 Clinton Global Initiative, 98 Cohen, Ronald, 90, 132–33, 175, 198 Cold War, 14, 16, 72 Colony Capital, 261, 263 Colson, Barry, 231, 248–49 Commercial Bank of Dubai, 220, 225, 226 Commerzbank, 285 Cortés Garcia, Julieta, 138 Coutts, 117, 274 Crimson Tide (film), 252 Cupola Group, 17, 27, 37 Danish newspaper cartoon, 47 Danone, 123, 124, 125, 293 Dave, Ashish accounting at Abraaj Group and, 185, 225, 246 Andrew Farnum and, 220, 228 indictment of, 281 KPMG ties and, 185, 241 resignation reported by, 244 on valuations, 210 Dawood family, 15 de Boer, Kito as advisor to Arif Naqvi, 22, 26–27, 197, 198 on Air Arabia loans, 241–42 Simon Clark’s interview with, 235–36, 247–48, 294 as executive for Abraaj Group, 202–3, 247 on Fadi Ghandour, 25 McKinsey & Company and, 22, 137, 197–98 Marshall Plan for Middle East and, 198–201 United Nations Quartet and, 197, 198–99, 202 de Franco, Clarisa, 225 Dell computers, 23 Deloitte, 262, 263, 279, 294 democracy, 292 Deutsche Bank, 27, 46–48, 49, 96, 119, 194, 236, 285 development finance institutions, 92–93, 97–98 DHL, 38 Diana, Princess of Wales, 272 Dubai Abraaj Group’s status in, 111, 143 Burj Khalifa tower in, 21, 50, 208 Capital Club in, 103, 108, 127 Celebration of Entrepreneurship conference in, 78–82, 83 criminal charges against Arif Naqvi in, 269, 270 as global financial center, 21–24, 27–28 globalization and, 205 legal jurisdiction of Abraaj Group in, 206 Arif Naqvi in, 17–19, 21–28, 38, 42–43, 51, 52 nationalities represented in, 22 royal dictator ruling, 80 social order of, 52 Dubai Financial Services Authority, 54–55, 242, 244, 249, 253, 266, 289 Dubai International Finance Centre, 103, 246 Dumas, Alexandre, 29 Dunleavy, Frank, 288 eBay, 129 Ebbers, Bernie, 215–16 Economist, 191–92 EFG Hermes, 48–49, 50, 52, 57 Egypt, 45, 48, 74, 82–83, 91, 128, 143 Egyptian Fertilizers Co., 53 Elias, Christopher, 227–28 Elizabeth II (queen of England), 117, 175, 177, 272, 274 Elkann, John, 222 Emborg, Erik, 123 emerging markets Abraaj Group and, 45, 99–100, 104, 115, 118, 127, 150 corruption in, 218–19 currency values and, 125, 126 Kito de Boer on, 22 financial crisis of 2008 and, 95 Arif Naqvi on, 135, 139–41, 161, 173, 206, 217–20, 221, 222 Arif Naqvi’s investments in, 4 Arif Naqvi’s providing access to, 45, 47 political crises and, 117–18, 121, 125, 126 poverty programs and, 45–46, 91–93 C.

Human Frontiers: The Future of Big Ideas in an Age of Small Thinking
by Michael Bhaskar
Published 2 Nov 2021

Developing new treatments for disease requires huge grants from the National Institutes of Health or similar; only once foundational work is established do startups and corporates step in. The businesses of today don't invent the technologies of the future; instead (not that this is to be sniffed at) they integrate them into desirable and easily consumable products.16 A shift in capitalism has changed corporate imperatives. In an age when maximising shareholder value is the priority, a new breed of company has less time to invest in wider social goods, which explains much of this decline. Spillovers from basic R&D benefit society more than they do the originating company: William Nordhaus estimates that only 2.2 per cent of the surplus from money spent on knowledge accrues to the investing company.

…

First, we look at those of excessive financialisation. Mammon's Empire Around 1980 capitalism changed. Building on the work of Austrian School economists (of course), a series of reforms coupled with changes in corporate thinking made markets more open and deregulated, their mechanisms absolute. A new model of shareholder value gained precedence. So far, so familiar. What is less often discussed are the consequences of this shift for our ability to think anew. If having an idea was simply a matter of sitting in a room, none of this would matter. But it's not. Bringing an idea into the world, whether launching a new cancer treatment or publishing a book, requires resources.

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Companies focus on the next quarterly earnings call; CEO tenure and stock ownership intervals are both on long downward trends, the latter from years in the 1940s to seconds in the 2010s.23 A survey of over 1000 senior executives reveals they all feel acutely pressured by short-term factors detrimental to long-term success.24 The development of big ideas requires time, space and money. In this world of fast-moving stocks and CEOs they get squeezed. A relentless focus on near-term monetary reward comes at the expense of costly and uncertain new ideas. In the early 1990s Boeing changed its corporate mission from building aeroplanes to delivering shareholder value (which, it should be added, promptly tanked). Should we be surprised at the subsequent lack of breakthroughs in aviation? Earlier we saw how the West now has slower long-term productivity growth, lower and less successful business creation, more concentration among big established firms and lower overall growth.

pages: 253 words: 65,834

Mastering the VC Game: A Venture Capital Insider Reveals How to Get From Start-Up to IPO on Your Terms
by Jeffrey Bussgang
Published 31 Mar 2010

In truth, it’s just a natural tension that exists when you have a board director who has competing fiduciary duties. And here’s where the issue of trust matters so much in the boardroom. The entrepreneurs and the VCs have to trust each other to be open about their motivations. In the case of the entrepreneur, they may be trying to protect their position of power at the expense of shareholder value. In the case of the VCs, they may be trying to achieve gains on behalf of their limited partners at the expense of the other company shareholders. If entrepreneurs and VCs suspect that the hidden motivations of the other are dominating their behavior and their decision making, they will lose trust in their advice and counsel.

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Even though Sirtris was still early in its development cycle, there was enough excitement around the company (and Christoph is very skilled at generating excitement) that he was able to successfully complete an IPO in May 2006, raising over $60 million in an IPO that opened at $10 per share and traded as high as $11 per share on the first day. But there was no time to celebrate. He had a drug to deliver and a company to build. All the while, Christoph kept talking to the pharmaceutical companies. “My job is simply to maximize shareholder value,” he explained. “So I kept in touch with all of these guys along the way. We wanted to only work with a company where the CEO and the head of R&D would commit to making this a major program. So a lot of our negotiations were around their investment in what we were doing for the next few years post-acquisition.”

pages: 204 words: 66,619

Think Like an Engineer: Use Systematic Thinking to Solve Everyday Challenges & Unlock the Inherent Values in Them
by Mushtak Al-Atabi
Published 26 Aug 2014

43 3.2 Emotional Intelligence 45 3.2.1 Self Awareness 46 3.2.2 Self-Management 48 3.2.3 Social Awareness 53 3.2.4 Relationship Management 58 Chapter 4 67 Conceive 4.1 Preparing to Conceive 69 4.2 Ideation: The Art of Idea Generation 71 4.2.1 Brainstorming 71 4.2.2 Random Entry 74 4.2.3 Trimming 77 4.2.4 Blue Ocean Strategy 78 4.2.5 Trend Recognition 82 4.2.6 Biomimicry and Learning from Nature 89 4.3 Concept Evaluation and Selection 89 Chapter 5 93 Design 5.1 Function and Form 93 5.2 Design Process 94 5.2.1 System Architecture 95 5.2.2 Configuration Design 97 5.2.3 Integrated Design 98 5.2.4 Detailed Design 98 5.3 Design Optimisation and Trade Offs 99 5.4 Other Design Considerations 100 Chapter 6 104 Implement 6.1 Hardware Manufacturing Process 104 6.2 Software Implementing Process 105 6.3 Hardware Software Integration 106 6.4 Testing, Verification, Validation, and Certification 106 Chapter 7 110 Operate 7.1 Sustainable and Safe Operations 110 7.2 Operations Management 110 7.3 Training and Operations 111 7.4 The Birth of the Checklist 111 7.5 Preventive Maintenance 115 7.6 System Improvement and Evolution 115 7.7 End of Life Issues 115 7.8 CDIO Case Studies 115 7.8.1 Taylor’s Racing Team 116 7.8.2 Women in Engineering 121 7.8.3 CDIO Beyond Engineering 124 Chapter 8 126 Ergonomics: Human Centred Design 8.1 Design for Ease of Use and Operation 127 8.1.1 Affordance, Visibility and Feedback 128 8.1.2 Constraints 130 8.1.3 Mapping 131 8.2 Anthropometric Measurements 132 8.3 Work Musculo-Skeletal Disorders (WMSDs) 133 8.4 Cognitive Ergonomics 133 8.4.1 Nudges 134 8.4.2 Framing 134 8.4.3 Anchoring 136 Chapter 9 137 Communication and Teamwork 9.1 Communication Strategies 137 9.2 Process Documentation 145 9.2.1 Logbooks 145 9.2.2 Minutes of Meetings 146 9.2.3 Technical Reports 146 9.2.4 Communication via Email 148 9.2.5 Operation Manuals 149 9.3 Teamwork 150 9.3.1 Selecting the Team Members 150 9.3.2 Core Competency 151 9.3.3 Organisation Chart 152 9.3.4 Team Evolution 153 9.3.5 Team Building Exercises 156 9.4 Connections and Networking 156 Chapter 10 159 Managing Projects for Success 10.1 Project Initiating 160 10.2 Project Planning 162 10.2.1 Cost and Resources Estimation 163 10.2.2 Time Estimation 163 10.2.3 Risk Management 168 10.3 Project Executing 169 10.4 Project Monitoring and Controlling 169 10.5 Project Closing 169 10.6 Project Stakeholders Management 170 Chapter 11 173 Entrepreneurship and Innovation 11.1 Philosophy of Entrepreneurship 174 11.2 Business Value 176 11.2.1 Customer Value (Value Proposition) 176 11.2.2 Shareholder Value 177 11.2.3 Employee Value 178 11.2.4 Suppliers and Partners Value 178 11.2.5 Society Value 178 11.3 Business Model (Entrepreneurial Ecosystem) 178 11.3.1 Customer 180 11.3.2 Channels 180 11.3.3 Revenue and Cost 180 11.3.4 Resources 181 11.3.5 Business Activities 181 11.3.6 Partnerships 181 11.3.7 Competitors 182 11.3.8 Business Environment 182 11.4 Business Plan 182 11.5 CDIO for the Market 184 11.5.1 Market Lifecycle of Products and Services 184 11.5.2 Market Evolution and Disruptive Innovation 186 11.5.3 Market Penetration 187 11.5.4 Customers Power in a Digital World 189 11.6 Lean Entrepreneurship 191 11.7 Funding Entrepreneurship 193 Chapter 12 198 Return on Failure 12.1 Learning and Failure 200 12.2 Failing Smart 203 12.3 Failure, Risk and Uncertainty 204 12.4 Education and Encouraging Failure 205 Chapter 13 209 Structured P Solving 13.1 Challenge Identification and Formulation 209 13.2 Root Cause Analysis 210 13.2.1 The 5 Whys 210 13.2.2 The 4 M Method 211 13.2.3 Fishbone Diagram 213 13.3 Estimation and Quantitative Analysis 214 13.4 Final Steps 215 Chapter 14 216 Engineering Holistic Education 14.1 Holistic Education 218 14.2 Learning Beyond the School 220 14.3 Mission Zero: A Vision for Higher Education 224 14.3.1 Zero Tuition Fees 224 14.3.2 Zero Impact on the Job Market 226 14.4 Engineering a Culture Change: Happiness Index 226 Epilogue 228 An Invitation Foreword Whether you are a professional engineer, an aspiring engineer, an enthusiast of engineering or someone interested in ideas, this book has something to offer.

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They address clear customer segments, the health conscious and the busy working respectively. If no other competing supermarket is offering these value propositions, and if the customer segment addressed is large enough, these value propositions represent a good foundation for the business. 11.2.2 Shareholder Value Business owners value profit and the increase in value of the shares they own. This happens when the business is well-run, gaining market share, and is able to generate value for its stakeholders. Business owners increasingly value making a positive difference in the world besides making a profit.

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Double Entry: How the Merchants of Venice Shaped the Modern World - and How Their Invention Could Make or Break the Planet
by Jane Gleeson-White
Published 14 May 2011

The risk inherent in the business practices of ABC Learning had been pointed out to the Australian Securities and Investments Commission (ASIC) in 2006 by a complainant in the following statement: ‘It’s suggested that the methods of financial reporting being employed here are designed to artificially create apparent shareholder value, when, in fact, that shareholder value associated with the child-care licences (92 percent of net assets) is based entirely on future net cash flows of the company, which may or may not be realised.’ Needless to say, accounting for future possible cash flows in the company’s present assets is seriously misleading to potential investors.

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The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay
by Emmanuel Saez and Gabriel Zucman
Published 14 Oct 2019

In the United States today, conventional wisdom holds that the goal of CEOs must be to grow the stock price of their firms. Corporations, according to that world view, are nothing more than a conglomerate of investors pooling their resources together. Although some corporate leaders may lament being hamstrung by activist shareholders, they all consider it their duty to maximize shareholder value. And dodging taxes unquestionably enhances shareholder value. Less tax paid means more after-tax profits that can be distributed in dividends to shareholders or used to buy back shares. But the shareholder-is-king doctrine is not universal, as evidenced by the diverse compositions of corporate boards across the world. In many countries, employee representatives make up a third of the members of corporate boards; in Germany the number is half in large companies.2 Before the 1970s US corporations, although workers’ representatives were not on their boards, were also widely considered responsible to a broad class of stakeholders beyond their owners: employees, customers, communities, and governments.3 Which, for our purposes, has one implication: company executives did not consider it their duty to dodge taxes and did not have much of a tax-planning budget.

pages: 288 words: 16,556

Finance and the Good Society
by Robert J. Shiller
Published 1 Jan 2012

In contrast, in Europe (where share ownership has traditionally been less dispersed), corporate boards have less to fear if they interpret their duties more broadly than making money for shareholders.3 Institutional structures encourage less focus on shareholder value. In Germany, for example, the supervisory board (Aufsichtsrat) of a corporation must by law, in most kinds of companies, have members representing labor, and boards often include representatives of labor unions.4 Surely such boards will be less focused on maximizing shareholder value. There is of late a movement under way in the United States to persuade state governments to create what is envisioned as a “fourth sector,” comprising a new kind of corporation—called a bene t corporation—that includes in its charter acknowledgment of some broader cause, beyond simply making a pro t.

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Yet our belief in the perfect applicability of the e cient markets theory goes even further than that, to an impulse to simplify the mission we expect businesspeople to pursue, and hence to moral implications. For example, consider the theory that corporate executives should take as their sole goal the maximization of shareholder value. If that is what executives do, it greatly simpli es the theory. One single objective, measured by the price of a share, becomes the driver of everything, just as energy in physics is the driver of everything, and this objective manifests itself, subject to mathematical transformations, in every other financial variable.

Cable Cowboy
by Mark Robichaux
Published 19 Oct 2002

Just weeks after AOL and Time Warner merged, the Internet bubble burst, sending values of online firms tumbling. The terrorist attacks of September 11, 2001, further accelerated a recession that battered media stocks in nearly every sector. Synergies and savings were elusive. By 2002, AOL–Time Warner would lose more than $100 billion in shareholder value since the merger announcement, amid rumors the behemouth might be dismantled. Vivendi, a French water utility that remade itself into a global media giant with the purchase of Seagram Company’s Universal Studios and other properties, nearly choked in the process, losing half its stock value.

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The structures of his deals were exotic, and his financial alchemy often befuddled Wall Street and investors. The flurry of complex mergers, acquisitions, stock dividends, and spinoffs clouded the picture of the company’s true performance, which was phenomenal by the one measure that counts in almost all business: shareholder value. Despite its reputation as a risky play, through 1997, TCI outperformed every other stock in the market. A single share of TCI, purchased at the 1974 low of 75 cents, was worth $4,184 by the end of 1997—a 5,578-fold increase.1 And in each of these deals, one outcome was certain: No one benefited more than Magness and Malone.

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Malone thought he could still keep the company intact, structuring the four units very much like Jack Welch structured business units at General Electric, as “autonomous units with a total delegation of operational parameters within budgeting 261 9486_Robichaux_03.f.qxd 8/28/02 9:54 AM Page 262 262 C A B L E C O W B OY controls,” as he precisely described it. “If you do these things,” Malone said in his letter to Armstrong, “you will have a great company, and you will maximize shareholder value. If it turns out that shareholders’ interests are better served by those tracking stocks eventually becoming independent companies, you will have lost nothing.” Malone got a friendly note in the mail from Armstrong that said he had read the letter and was thinking about it. Shortly thereafter, he did take Malone up on one piece of advice, hiring a new CFO in December 1999—Charles Noski, the former president and COO of Hughes Electronics Corporation.

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I.O.U.: Why Everyone Owes Everyone and No One Can Pay
by John Lanchester
Published 14 Dec 2009

The government adopted City models of behavior and the vocabulary to go with them—the language of targets and goals being a sign of uncritical and uninformed governmental Cityphilia. David Kynaston, the author of a magisterial four-volume history of the City of London, comes in his fourth book to discuss “City cultural supremacy” and concludes that “in all sorts of ways (short-term performance, shareholder value, league tables) and in all sorts of areas (education, the NHS and the BBC, to name but three), bottom-line City imperatives had been transplanted wholesale into British society.”6 Successive governments gave the City more or less everything it wanted. This process began with Margaret Thatcher’s election in 1979: one of the incoming government’s first actions, practically as well as symbolically important, was the abolition of exchange controls, which opened the United Kingdom to the international flow of capital.

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The car industry makes cars, the television industry makes TV programs, the publishing industry makes books, and with a bit of luck they all make money too, but for the most part the people engaged in them don’t regard money as the ultimate purpose and justification of what they do. Money is a by-product of the business, rather than its fundamental raison d’être. Who goes to work in the morning thinking that the most important thing he’s going to do that day is to maximize shareholder value? Ideologists of capital sometimes seem to think that that’s what we should be doing—which only goes to show how out of touch they are. Most human enterprises, especially the most worthwhile and meaningful ones, are in that sense industries, focused primarily on doing what they do; health care and education are both, from this anthropological perspective, industries.

pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away
by Doug Henwood
Published 9 May 2005

According to Cappelli, it's not enough to teach students "responsibility, self-discipline, and adherence to rules"; schools must emit graduates with good attitudes—which, as we've learned, means being cheerful, self-sacrificing, and prosocial. Though he is too respectable to say so, Cappelli makes it clear that talk of teaching "values" in the classroom is in part about the most important value of aU, shareholder value. Employers, CappeUi and his sources say, should use fear of "losing face" as a motivational tool, and, through "role modeHng," use "conformity pressures [to] produce a positive result." It's not enough that employers control your time; they should control your mind and heart as well. But if that doesn't work, there's always snooping.

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"A Note on the Impact of Hedon-ics and Computers on Real GDP," Survey of Current Business, December, pp. 17—22 <www.bea.doc.gov/bea/articles/beawide/2000/1200hm.pdf^. Lev, Baruch (n.d.). "Communicating Knowledge Capabilities," unpublished paper <www.stern.nyu.edu/~blev/communicating.doc>. (2000). "Knowledge and Shareholder Value," unpublished paper <www.stern.nyu.edu/ -blev/knowledge&shareholdervalue. doc >. - (2001). Intangibles: Management, Measurement, and Reporting (Washington: Brookings Institution), forthcoming. Lewis, Peter H. (2000). "Wireless Valhalla: Hints of the Cellular Future," NewYork Times, jub/ 13,p.Gl.

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Money Mavericks: Confessions of a Hedge Fund Manager
by Lars Kroijer
Published 26 Jul 2010

At one point in the meeting he even said: ‘So you don’t even think I should sit here? Should I be next door buying warrants?’ Investors will often hear hedge funds discuss investor activism. Although activism is less prevalent in Europe than in the USA, some investors have been very successful in steering (or forcing) companies in the right direction of creating shareholder value. But sometimes I think activism is like another hedge-fund buzzword used by managers to publicly illustrate to investors that the managers are somehow doing something to improve performance. In my experience we found it more productive to approach management as a friendly shareholder with productive suggestions, almost in lieu of an investment banker.

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That we made good money along the way was obviously the main selfish objective but the feeling that we had actively helped make this happen gave a great sense of meaning to what we do. Corporate finance summary For those with an interest in corporate finance, here is a brief explanation of why Bure’s actions were likely to enhance shareholder value and why we could profit from them. Soon after the shares, warrants and bonds were issued it was obvious that there was a lot for us to do. The bonds traded at a very high yield to maturity, and the warrants traded below their intrinsic value (i.e., you could buy a warrant, exercise it, and pay less than the share price – this should not theoretically happen, but the exercise process took about two or three weeks).

pages: 283 words: 73,093

Social Democratic America
by Lane Kenworthy
Published 3 Jan 2014

By the peak year of the 2000s business cycle, 2007, the employment rate had not yet reached its prior peak.57 And during the subsequent economic crash nearly all the progress of the 1980s and 1990s was erased. What happened? We don’t know. It may be that economic and institutional forces—strong competition, the shareholder value orientation in corporate governance, Wall Street’s appetite for downsizing, weakened unions—have made management reluctant to hire.58 Perhaps it was manufacturing jobs fleeing to China and service jobs shifting to India.59 Or perhaps the computer-robotics revolution finally began to hit full force.60 Maybe it was a combination of these and other factors.

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Atlantic, December. Fitzgerald, Joan. 2006. Moving Up in the New Economy: Career Ladders for U.S. Workers. Ithaca, NY: ILR Press. Fletcher, Michael A. 2013. “401(k) Breaches Undermining Retirement Security for Millions.” Washington Post, January 15. Fligstein, Neil and Taek-Jin Shin. 2003. “The Shareholder-Value Society.” Indicators, Fall: 5–43. Florida, Richard and Martin Kenney. 1990. The Breakthrough Illusion. New York: Basic Books. Fölster, Stefan and Magnus Henrekson. 2001. “Growth Effects of Government Expenditure and Taxation in Rich Countries.” European Economic Review 45: 1501–1520. Frank, Robert H. 2008.

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The Money Machine: How the City Works
by Philip Coggan
Published 1 Jul 2009

German politicians began to feel that high taxes were deterring entrepreneurship and causing sluggish economic growth. An ageing German population suggested that, in the long run, pension costs could become a massive burden on the German state. So, slowly but surely, Germany and the rest of Europe started to edge towards the Anglo-Saxon model. Businesses began to talk of ‘shareholder value’; they divested themselves of non-core operations, simplified their shareholding structures and focused on improving profits. Perhaps the ultimate signal of the change in culture came in early 2000 when Mannesmann of Germany was taken over by Vodafone of the UK; this in a culture where hostile takeovers were extremely rare, let alone a hostile takeover by a foreign company.

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Some people, particularly company executives, worry that investment institutions will gang together and try to alter the policies of the companies in which they have substantial holdings. This is happening more than it used to, with so-called activist investors often demanding that companies take action to create ‘shareholder value’ and other ethical investors demanding that companies respect the rights of workers in developing countries, adopt sound environmental policies and so on. In the majority of cases, however, institutions do not exercise their power to intervene in the day-to-day running of firms. One reason is that they do not have the time or the expertise to do so.

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Humans as a Service: The Promise and Perils of Work in the Gig Economy
by Jeremias Prassl
Published 7 May 2018

Uber follows the basic lines of a traditional taxi firm; TaskRabbit, those of a labour-outsourcing agency. The key to understanding the business model, Tomassetti points out, is a different one: platforms are but the latest example of ‘postindustrial corporations’.33 They seek ‘to maxi- mize profit, but not necessarily through productive enterprise. Rather, [they] may create shareholder value by other means, like asset manipulation, specu- lative activity, and, most pertinent here, regulatory arbitrage.’34 What does that mean? Victor Fleischer’s seminal work defines regulatory arbitrage as ‘the manipulation of the structure of a deal to take advantage of a gap between the economic substance of a transaction and its regulatory treatment’.35 Firms, in other words, may try to structure their business so as to hide what is actually going on from regulators and evade the law.

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Stable employment relationships are also associated with indirect cost, because the risk of fluctuations in demand cannot be offloaded onto individual workers: a bus company’s drivers ply their routes and receive wages regardless of whether passengers are on board or not.37 Regulatory arbitrage in the gig economy takes many forms: think about ride-sharing platforms’ insistence that taxi regulation does not apply to their business, for example. Portraying workers as independent entrepreneurs and refuting their employment status, on the other hand, is a consistent theme throughout: shareholder value is created by denying workers their legally mandated rights. Classifying workers as independent contractors allows plat- forms to offer services without having to pay for their cost. Responsibility for assets, remuneration, insurance, and tax, as well as the risks of fluctuating demand, are devolved to individual micro-entrepreneurs.

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When More Is Not Better: Overcoming America's Obsession With Economic Efficiency
by Roger L. Martin
Published 28 Sep 2020

These considerations disappear from the equation when procurement-cost level is surrogated for efficient procurement. Surrogation is similarly baked into the modern capital markets, where today’s stock price is considered the true and complete manifestation of the value of a company. The job of executive management, therefore, is to increase that stock price in order to “maximize shareholder value.” The logical imperative of this surrogation is to tie executive compensation to stock-price performance—analogous to tying teacher compensation to test scores in Atlanta. Has that worked any better than it did in Atlanta? Recall that in Atlanta, the surrogation produced a perverse outcome, which was the absence of real student learning and the exposure of impressionable students to cheating on the part of their teachers.

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See Pareto distribution preferential attachment, 61 pressure, 100–103, 113 prices, decline in, 9–10 Principles of Scientific Management, The (Taylor), 42 private markets, 91 Private Securities Litigation Reform Act, 87, 112 Private Sponsorship of Refugees Program, 196 problem solving, 172–174 procurement costs, 50, 63 production-cost efficiencies, 54 productive friction, 102, 113, 142, 149–152 productivity growth, 8–10, 42 Progressive Era, 53 progressive taxation, 14, 159–162 protectionism, 151 proxies in business, 49–53 in economic policy, 53–56 in education, 45–49 lineage of, 56–57 long-term, 155–159 for measuring progress, 46 multiple measurements as, 127–129, 135 outcomes and, 57 problem with, 46–57 surrogation and, 127–129 public companies, 91 public policy models, 29–30 schools of, 180 public utilities, 152 purchasing power, 188–192, 207 Putnam, Robert, 199 Qualcomm, 154 qualities, appreciation of, 181–184 quantities, 181, 182 QuikTrip, 125 Rajgopal, Shiva, 155 random-access memory (RAM), 177 Reagan, Ronald, 54, 160 real income, 10, 11 real world, interaction with, 178–181 reciprocal political relationships, 197–200 Reckitt Benckiser Group, 188 reductionism, 119–123, 134, 173–178 redundancies, 111, 133–134 reflectiveness, 172, 213–214 refugees, 196 regulations, financial, 107–108, 112, 139–141, 143 Reichheld, Fred, 27, 48, 147–148 Renaissance Technologies, 157 Repo 105, 85, 86, 104, 137 Report on the Subject of Manufactures (Hamilton), 40 representative government, 201 Republicans, 160–161, 197–198 See also political parties; politicians resilience, 98–99 balance between efficiency and, 15, 99–114, 210 monopolies and, 132 restaurant industry, 115–116 restrictor plates, 102, 103 retailers, 124–126 revision, of laws, 142–145 Ricardo, David, 40–42, 56 Riel, Jennifer, 171 Ries, Eric, 156 Rise of the Creative Class, The (Florida), 67–68 robber barons, 53 Rockefeller, John D., 129 Rodrik, Dani, 150 Ronaldo, Cristiano, 61, 64–65 Roosevelt, Franklin, 12 Rotman School of Management, 176, 180, 212–213 routine-intensive jobs, 68–70 rules, 142–145 safe harbor provision, 87 Sandy Hook shooting, 197 Santa Fe Institute, 177 Sarbanes-Oxley Act (SOX), 84–85, 142 Sawitz, Stephen, 116–119 Scherer, Stephen, 111–112 school reform, 29–30, 49 school shootings, 197 scientific management, 42 SeaWorld Entertainment, 192 Securities and Exchange Commission (SEC), 64, 90, 112–113, 156 self-interest, 94, 203 Senate, 201, 202 separation, 106–113 September 11, 2001, 111 shareholder value, 50–52 Sharp, Isadore, 122, 123 Sherman Antitrust Act, 53, 152 short-term capital, 157 short-term efficiency, 155 siloes, 32, 122 Sinatra, Frank, 64, 65 Singapore, 93–94 slack, 50, 56, 63, 123–127, 132, 134–135 Sloan School of Management, 177 smartphones, 131 Smith, Adam, 39–40, 41, 56 Smoot-Hawley Tariff Act, 41 Snapchat, 129, 191, 192 social media, 61, 65, 191 South Korea, 151 Southwest Airlines, 127–128 SOX.

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Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
by Satyajit Das
Published 15 Nov 2006

Dealers always understand that making managers look good translates into uber fees. They jumped at the chance; they coined a sexy term for it all – ‘equity capital management’. Firms needed to manage their equity just like they managed other risks – interest rates, currency, commodity. The mantra of shareholder value hid the fundamental reality. It was about manipulating the company’s own share price. In 1992, Cemex (the second largest industrial company in Mexico) purchased two Spanish cement manufacturers. Cemex’s stock price plunged by 37%; its earnings had actually increased. The acquisitions would provide incremental earnings growth and were strategically necessary.

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The reset preference shares qualified as equity capital. The issuer got equity at a cost of around 7.00% when issuing shares would have cost around 18%. Future earnings growth and capital price appreciation didn’t go to the reset preference shareholders. It was all reserved for the shareholders. Management pontificated on EPS accretion, shareholder value and dynamic equity capital management. The investors had in effect agreed to buy a bond and had agreed to underwrite the shares of the issuer in the future. They had done all this for a bit of extra return. If they understood how the deals worked, then they probably consoled themselves with the thought that the issuers were high quality (AA or better rated issuers).

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Bank regulations framed by the BIS (Bank of International Settlements) mean that banks have to hold capital against credit risk. If a bank lends to a company then it has to hold a minimum of $8 in share capital for every $100 of the loan. If it hedges the risk then it needs to reduce the amount of capital it must hold. The bank has to pay a fee that reduces its return. In the world of shareholder value, it needs to reduce capital or its RAROC will go down. Only if banks hedge with an OECD government or bank will capital be reduced. In practice, this means that you have to buy protection from OECD banks. The bank also has to be of good credit quality. It doesn’t help to buy protection from a bank that is likely to default before the reference entity defaults.

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People, Power, and Profits: Progressive Capitalism for an Age of Discontent
by Joseph E. Stiglitz
Published 22 Apr 2019

(Chestnut Ridge: Hungry Hollow Books, 2015); Michael Dorff, Indispensable and Other Myths: Why the CEO Pay Experiment Failed and How to Fix It (Berkeley: University of California Press, 2014); Steve Clifford, The CEO Pay Machine: How it Trashes America and How to Stop it (New York: Blue Rider Press, 2017); and Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (San Francisco: Berrett-Koehler, 2012). 95.This book emphasizes the role of market power—the increase of that of large corporations and CEOs, the domination of that of workers and consumers, and how we need to rewrite the rules of the market economy that have resulted in more power to CEOs and corporations and less power to workers and consumers.

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Like Goldman Sachs’s Blankfein’s admission earlier, this represents the new immorality of the financial sector, and a disregard for reputation. 22.Milton Friedman, the high priest of the Chicago School to whom we referred earlier, was asserting these positions, even as advances in economics were explaining why shareholder value maximization does not, in general, lead to societal well-being. See, for instance, Sanford Grossman and Joseph E. Stiglitz, “On Value Maximization and Alternative Objectives of the Firm,” Journal of Finance 32, no. 2 (1977): 389–402; and “Stockholder Unanimity in the Making of Production and Financial Decisions,” Quarterly Journal of Economics 94, no. 3 (1980): 543–66. 23.See Tooze, Crashed. 24.The Republican tax bill has pushed profits even higher.

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United States, 133 science and collective judgments, 262–63n20 Enlightenment and, 10–12 opposition to, 20 replacement with ideology, 20 as shared value, 228 as social enterprise, 262n18 and standard of living, 263n22 Trump’s attack on, xvii, 16–17 and wealth of a nation, xiv sea level rise, 207 secular stagnation, 120 securitization of mortgages, 217 self-driving cars, 118 self-interest, 19–20, 113 selfishness, 30, 240 Senate, 6, 159–60 senior citizens, 181–82 service sector, 122–23 share buybacks, 109 shareholder interests, 102 shareholder value maximization, 112 share of capital, 53 Shelby County v. Holder, 342–43n44 Sherman Antitrust Act (1890), 68 Shiller, Robert, 63–64 shortsightedness, 104–5 short-term interests, 84, 112 short-term stock trading, 207 Silicon Valley, 16, 117 Sinclair, Upton, 144 single payer system, 214 skill-biased technological changes, 304n19 slavery, 161, 271n3 small and medium-sized enterprises (SMEs), 102, 105–6 Smith, Adam, 152 on collusion among businesses, 51, 66 and Enlightenment, 10 and limits of markets, 24 and moral sentiments, 229 Wealth of Nations, 8–9 Snowden, Edward, 127 Social Darwinism, 309–10n42 social insurance programs, 141, 189 “socialist market economy with Chinese characteristics,” 95 social justice government involvement in economy and, 142 and intergenerational transmission of advantage/disadvantage, 199–201 and labor market, 197–99 restoring, 197–201 social media, 96, 131–36; See also Facebook social protection, 188–91 government and, 231 unemployment insurance, 189–90 universal basic income, 190–91 Social Security, 13, 142, 189, 210, 214–16, 242 Social Security Administration, 217 Social Security Trust Fund, 216 society, economic behavior and, 30 soft power, 29, 235–36 solar panels, Chinese, 91–92 Solow, Robert, 263n22 special interests, 146; See also lobbyists specialization, 9 SpeechNow.org v.

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When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm
by Walt Bogdanich and Michael Forsythe
Published 3 Oct 2022

“It shocks the conscience anytime that a murderous dictator can rely on the legitimacy of a Western consulting company, especially the most prestigious company out there, in order to further their goals.” In an interview with the Times, Buttigieg also spoke forcefully against McKinsey’s preoccupation with shareholder value. “That’s not good enough at a time when we are seeing how the economy continues to become more and more unequal, and we are seeing the ways in which a lot of corporate behavior that is technically legal is also not acceptable.” A more emotional response came from one of McKinsey’s most famous former consultants—and frequent critic—Tom Peters, co-author of one of the bestselling business books of all time, In Search of Excellence.

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Peters said that until he heard that McKinsey had recommended “turbocharging” opioid sales, he was still “vaguely proud” to list the firm on his CV. “No more. How do you do that and then pretend you are a values-driven company? How do you have a Values Day and do that shit? It’s unbelievable.” An even bigger problem, Peters said, might be the “disinvestment in people” in favor of bigger profits. “I really think the shareholder value maximization thing has done more harm than any single thing maybe in the country. It is the father of inequality, and inequality is the father of Trump.” Several former consultants said they had a hard time understanding how a firm with such kind and caring people could take on such disreputable clients.

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Just hours after The New York Times published an article about Healey’s findings, a private chat room for present and former McKinsey workers registered their reactions. Several were expletive-laced expressions of outrage. Others talked about the duty to serve the client’s bottom line within moral and ethical boundaries. Another wrote that it was fine to maximize shareholder value “but not at all costs, not at the cost of our moral values and our society’s well-being.” After the Times published those responses, the website was shut down. Chapter 8 “Turning a Coal Mine into a Diamond” The swag is abundant. Charge your cell phone with an ExxonMobil-branded battery.

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Vulture Capitalism: Corporate Crimes, Backdoor Bailouts, and the Death of Freedom
by Grace Blakeley
Published 11 Mar 2024

This crisis of governability within the firm was taking place within the context of a wider crisis of capitalist legitimacy.71 It was not simply the authority of the boss over the worker that was being challenged, but the very “free enterprise system” itself.72 Those in positions of power were faced with a crisis of management on two fronts—on the one hand, the “vertical” challenge of governing those beneath them in organizational hierarchies, and on the other hand, the “horizontal” challenge of responding to a social and political environment that was increasingly hostile.73 To make society “governable” again, the neoliberals had to unleash the power of capital, while creating a pliable class of consumer-subjects out of an organized class of worker-organizers.74 In the words of Leo Panitch and Sam Gindin, “Neoliberalism was essentially a political response to the democratic gains that had been previously achieved by working classes.”75 Despite all their talk of shrinking the state, it was through the—often extraordinarily violent—exercise of state power that this project was achieved. In the 1980s, restrictions on the lending and movement of money were removed, financial markets deregulated, tax rates cut, and industries privatized.76 The religion of shareholder value was institutionalized, and firms did anything they could—either of their own will or under duress from “activist investors”—to cut costs and boost returns.77 Unions were crushed, and atomized entrepreneurs and consumers of state services were created in place of workers and citizens.78 When politicians like Thatcher and Reagan finally claimed victory over labor movements, governability was restored; the bosses once again had the sole power to plan.

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The success of the neoliberal movement ensured that “individualized consumerism rather than collective services and a democratized state and economy became the main legacy of working-class struggles during the twentieth century.”20 In 1996, after successive rounds of reorganization and restructuring, Lucas merged with an American company to form LucasVarity PLC, which immediately announced cost-cutting measures that led to three thousand job losses.21 Three years later, the merger was reversed when LucasVarity was purchased by the US company TRW, which carved up and stripped the company in the shareholder value revolution of the 1990s.22 Around the turn of the century, Lucas Aerospace was acquired by TRW Aeronautical Systems, and two years later it was sold to US manufacturing company Goodrich Corporation.23 In 2012, Goodrich was acquired by United Technologies for $16.5 billion, which merged Goodrich with an existing subsidiary to form UTC Aerospace Systems.24 A few years later, United Technologies, the parent company of UTC Aerospace, had something of a shock when a plane for which it had provided many components nose-dived out of the sky.

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The role of the Big Three asset managers is undermining the long-held distinction between more coordinated economies, in which banks and states play a more significant role in allocating capital than financial markets, and liberal market economies, in which financial markets play a much bigger role and shareholder value is therefore enforced much more ruthlessly. A shortcoming of the latter model, it has often been argued, is a rigid focus on short-term returns and lack of patient capital that can undermine the long-term stability of a firm. James Hawley and Andrew Williams, “The Emergence of Universal Owners: Some Implications of Institutional Equity Ownership,” Challenge 43, no. 4 (July–August 2000): 43–61, https://www.jstor.org/stable/40722019. 127.

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Race Against the Machine: How the Digital Revolution Is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy
by Erik Brynjolfsson
Published 23 Jan 2012

There has never been a worse time to be competing with machines, but there has never been a better time to be a talented entrepreneur. Entrepreneurial energy in America’s tech sector drove the most visible reinvention of the economy. Google, Facebook, Apple, and Amazon, among others, have created hundreds of billions of dollars of shareholder value by creating whole new product categories, ecosystems, and even industries. New platforms leverage technology to create marketplaces that address the employment crisis by bringing together machines and human skills in new and unexpected ways: eBay and Amazon Marketplace spurred over 600,000 people to earn their livings by dreaming up new, improved, or simply different or cheaper products for a worldwide customer base.

When Free Markets Fail: Saving the Market When It Can't Save Itself (Wiley Corporate F&A)
by Scott McCleskey
Published 10 Mar 2011

Treasury will lead a working group, with participation by federal financial regulatory agencies and outside experts, that will conduct a fundamental reassessment of the supervision of banks and BHCs. The working group will issue a report with its conclusions by October 1, 2009. 3. Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value and to prevent compensation practices from providing incentives that could threaten the safety and soundness of supervised institutions. In addition, we will support legislation requiring all public companies to hold non-binding shareholder resolutions on the compensation packages of senior executive officers, as well as new requirements to make compensation committees more independent. 4.

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We urge national authorities to implement by the end of 2009 the G-20 commitment to require hedge funds or their managers to register and disclose appropriate information necessary to assess the systemic risk they pose individually or collectively Introduce Better Compensation Practices In line with G-20 commitments, we urge each national authority to put guidelines in place to align compensation with long-term shareholder value and to promote compensation structures do not provide incentives for excessive risk taking. We recommend that the BCBS expediently integrate the FSB principles on compensation into its risk management guidance by the end of 2009. Promote Stronger Standards in the Prudential Regulation, Money Laundering/Terrorist Financing, and Tax Information Exchange Areas 1.

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The Green New Deal: Why the Fossil Fuel Civilization Will Collapse by 2028, and the Bold Economic Plan to Save Life on Earth
by Jeremy Rifkin
Published 9 Sep 2019

Some of those shareholder resolutions opposed outrageous executive compensation while workers were summarily let go and wages remained stagnant; others focused the spotlight on Dickensian sweatshop conditions, mostly in Asia, sullying the public image of the companies and undermining shareholder value. Still, Marens concluded in a 2007 article that while public and private pension funds became key players in advancing socially responsible investment and shareholder value, institutionalizing this new watchdog role in the oversight of corporate America, “labor’s shareholder activism … is likely to remain a tactical weapon, albeit an intriguing and potentially useful one, for skirmishing with corporate management and publicizing grievances.”23 As for our vision of the workers of the world taking responsibility for how the pool of global pension capital will be invested on behalf of their workplaces, communities, and families, Marens suggested that the evidence, at least in 2007, was that it was unlikely.

pages: 321

Finding Alphas: A Quantitative Approach to Building Trading Strategies
by Igor Tulchinsky
Published 30 Sep 2019

A corporate event is generally unique to the specific organization and unrelated to broad market events, helping to reduce a portfolio’s market dependency. Another important advantage of an event-driven strategy is that it is an all-season strategy. In every phase of the business and economic cycle, companies are pursuing ways to unlock shareholder value, so there is always some type of corporate event happening. Merger arbitrage events are quite frequent when the economy expands, for example, and distressed-strategy events are more common when the economy contracts. Figure 25.1 lists corporate events that are more frequent in various phases of the business cycle.

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The returns on M&A strategies are uncorrelated during bull and mild bear markets, but in significant downturns they show higher correlation to the market because factors like uncertainty of completion, regulatory problems, or inability to get financing increase the risk of deal failure. 200 Finding Alphas SPIN-OFFS, SPLIT-OFFS, AND CARVE-OUTS A spin-off is the opposite of a merger: a divestiture in which a company separates a portion of its business (a division or a subsidiary) and organizes it as an independent company that is often publicly traded. This generally is done to unlock overall shareholder value (Table 25.2). A company may want to sell its noncore or nonessential businesses to focus on its core operations and competencies. For instance, General Electric sold 15% of its noncore financing arm Synchrony Financial in a 2014 initial public offering and completed the separation the next year by offering GE shareholders the opportunity to exchange their shares for shares in the 85% of Synchrony GE still owned.

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Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money
by Owen Walker
Published 4 Mar 2021

Woodford was one of the largest shareholders in his former employer, British American Tobacco, maker of Lucky Strike and Benson & Hedges, and only railed against the company’s executives when they failed to increase the company’s dividend for the first time in more than twenty years, leading to a 4 per cent fall in its share price. ‘A company that says [it is committed to shareholder value] decides not to spend £24 million increasing the dividend and, as a consequence, the shareholders are now £621 million worse off. It is one of the most bizarre decisions I have ever experienced,’ Woodford moaned to The Times. Perpetual’s base in Henley offered the company another advantage besides a comfortable rural surrounding away from the London rat race.

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The merged company would also have an enviable portfolio of profitable drugs and vaccines – as well as a range of much-loved consumer products, from Aquafresh and Sensodyne toothpaste, to Ribena and Lucozade soft drinks – that would continue to sell well and provide tasty dividends. But when initial talks between the two sides stalled over which executives would end up running the new business, Woodford groused to the Wall Street Journal that ‘management egos [had] grown so great that they can stand in the way of £20 billion of shareholder value’. He added that he was dismayed ‘the non-executive directors have not bashed some heads together – which is really what they’re there to do’. The more Woodford waded into corporate deals and picked up press attention for his outspoken views, the more he saw himself not so much as a sideline investor but as a powerful player in the cut-and-thrust world of mergers and acquisitions.

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The Corona Crash: How the Pandemic Will Change Capitalism
by Grace Blakeley
Published 14 Oct 2020

As these pools of capital grow larger, financiers become more powerful – particularly the bankers able to create new money through their lending and the investors able to use the capital they manage to mediate ownership – and their interests come to merge with those of other economic actors. In this way, financialisation is a process that has come to affect each of the constituent parts of the modern economy – households, corporations and the state. The financialisation of the modern corporation is defined by the supremacy of the ideology of shareholder value.13 Since the 1980s, share ownership has become increasingly concentrated in the hands of institutional investors like hedge funds and pension funds. As this process intensified, incentives were created for corporate executives to distribute money to shareholders today, before investing in ways to boost the profitability of the enterprise tomorrow.

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Lessons From Private Equity Any Company Can Use
by Orit Gadiesh and Hugh MacArthur
Published 14 Aug 2008

The primary financial measure Crown Castle focuses on is cash flow per share versus an absolute measure such as pure cash flow (which can be increased by acquisition, but not necessarily enhance cash flow per share). This ensures the company is focusing its efforts on growth strategies that increase shareholder value and not growth for growth’s sake. In addition to being Crown Castle’s primary financial measure, it is also the measure the company reinforces with Wall Street analysts. Managers in the best PE firms are careful to avoid imposing one set of measures across their entire portfolios, preferring to tailor measures to each business in the portfolio.

pages: 549 words: 147,112

The Lost Bank: The Story of Washington Mutual-The Biggest Bank Failure in American History
by Kirsten Grind
Published 11 Jun 2012

I am glad to have this chance to spend some time with you today as we take a look at our 2007 results and what 2008 holds for WaMu. First off, I have been informed we have a quorum so I will officially call the meeting to order. “Clearly, 2007 was an extraordinarily difficult year for WaMu but, you know, today I believe that we are at the beginning of the road back, back on a path of profitability and to creating the shareholder value that we all desire. Now, I expect that when we look back a year from now we are going to view April 2008 as a turning point in this company’s history. “And let me tell you why I think this is the case. What has happened the last couple of years in the mortgage and credit markets has never happened before in my lifetime.

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“To our great regret and alarm, Washington Mutual has become a poster child of board failure to protect the interests of shareholders. Specifically, from 2005 through 2007, the finance committee knew the housing bubble would burst, would collapse, yet allowed Washington Mutual to expand its Option ARM and subprime exposure, leading to a devastating 75 percent decline in shareholder value. Our board of directors, chaired by yourself, CEO, Mr. Killinger, joined Ms. Pugh’s committee and ignored the risks to shareholders. Ms. Pugh’s committee and the board failed to protect shareholders.” The anger poured out of shareholders, one after the other. Said another activist: “Sadly, here at WaMu, we really feel we have a board that has lost its way.

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Not only had he raised money, he had raised money from David Bonderman, whose investment decisions were respected in the financial world. This capital, Killinger said in announcing the deal, “will position us for a return to profitability as these elevated credit costs subside. With the support of these investors, we have every confidence in our ability to deal with today’s market conditions and restore shareholder value.”59 The money had placated the OTS, which believed WaMu was in stable condition. But the private equity infusion had not been Bair’s preference, and the FDIC was now still left with the possibility that WaMu might fail, affecting the deposit insurance fund. The agency would be stuck with cleaning up its mess.

pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society
by Will Hutton
Published 30 Sep 2010

For instance, Bart Becht, CEO of Reckitt Benckiser, collected £36.8 million in 2009 in base pay, bonuses and share options – while exercising his rights to more millions of share options on top. The Guardian computed that his pay was 1374 times that of the average worker in his company. The doctrine is that because he maximised shareholder value successfully he is more than worth the money. But Mr Becht, while clearly a good chief executive, is also a very lucky one. When CEOs get disproportionately paid on this scale – up to ten times more than his peers – more generally there is strong evidence that the recipients have hit the jackpot: paid for being in the right place at the right time but with no accompanying penalties if the luck runs the other way.11 There is also evidence that the comparisons used by remuneration committees to support pay on this scale have been creatively deployed, with some CEOs imaginatively stretching the definition of their peers to include bigger, more complex rivals – inevitably handsomely paid.12 Prevalent in the US, this practice, along with pay, is becoming more widespread in Britain.

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If it insists on doing so, there will be a revolt from below. Jack Welch, former CEO of General Electric, has pronounced that it is stupid to think that the sole purpose of a company is to maximise value for its shareholders, the formal reason that is trotted out for such exorbitant executive pay. ‘Shareholder value is a result, not a strategy,’ he declared, abandoning the credo he had championed for twenty-five years. ‘Your main constituencies are your employees, your customers and your products.’5 British companies have yet to get the message. Too few place their business purpose at the heart of their operations, or recognise the need for fairness.

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Certainly the era of his predecessor John Browne was defined by aggressive cost-cutting and deal-making, so that BP’s share price quadrupled. Hayward tried vainly to row back – but too late. Today the company faces takeover and dismemberment, or at best a long struggle to win back its reputation. Shareholder value maximisation has endangered a great British corporate asset. There needs to be change. Unfortunately, British politics has never been good at squaring up to vested interest groups and challenging the sometimes absurd assumptions on which they build their arguments in the wider public interest.

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Triumph of the Optimists: 101 Years of Global Investment Returns
by Elroy Dimson , Paul Marsh and Mike Staunton
Published 3 Feb 2002

Second, we may be misguided in expecting a relationship since GDP can grow without generating wealth gains to equity holders. Over the twentieth century, the three fastest growing economies among our sixteen countries were Japan (3.9 percent per year GDP per capita growth), Italy (2.8 percent), and Spain (2.6 percent). Historically, none of these countries could be accused of having a strong concern with shareholder value. As noted by Arnott and Ryan (2001), however, we would expect to find a positive relationship between a country’s equity market performance and its real dividend growth since over sufficiently long intervals, higher equity returns will be associated with higher corporate profits, which in turn are likely to lead to higher dividends.

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In other countries, the tax regime provides little incentive for buybacks, while in some, such as The Netherlands, it specifically discourages them. Also, as Rau and Vermaelen point out, buybacks do not fit readily with the European corporate culture, since most continental European countries have traditionally emphasized stakeholder, rather than shareholder, value. There is a gradual process of change, however, and buybacks have become more popular in recent years. Meanwhile, the United Kingdom is the European country where buybacks are most popular, accounting for some 60 percent of the total. Notwithstanding this, even UK repurchase activity remains tiny compared with the United States. 11.7 Summary This chapter began by showing that dividends are a critical element of long-run gains in wealth.

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The biggest losers are likely to be those firms that are overtaken by new competitors who can exploit new technologies, and innovative or re-engineered processes with a lower cost base. The dinosaurs that do not adapt will experience downgrading of their market ratings, and falls in their stock prices. Ironically, the latter may be misinterpreted as an increase in the cost of capital, and may contribute to a vicious circle of continuing loss of shareholder value. Corporate investment is not automatically a “good thing.” To add value, investment must be in worthwhile projects that cover the cost of capital, rather than in expansion, acquisition, or upgrading activities that fail to do so. After the “new economy” bubble burst, and during the setbacks that followed the terrorist outrages of September 11, 2001, many companies have not had sufficient appealing projects to allow them to benefit from today’s lower cost of capital.

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The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion
by John Hagel Iii and John Seely Brown
Published 12 Apr 2010

The economy-wide return on assets (ROA) in the United States has fallen to nearly one-quarter of its 1965 levels, even as business’s reliance on physical assets to generate a profit (asset intensity) has dropped 40 percent.9 Moreover, the gap between the most and least successful businesses has increased over time, as measured by both ROA and shareholder value creation. This doesn’t imply a simple averaging out, in which big winners are being dragged down by a few big losers. The “winners” in aggregate are barely maintaining their previous ROA levels, while the losers are experiencing bigger and bigger losses. Our research shows that this is a long-term pattern that was established and that was sustained well before the “Great Recession” began in 2007.

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In this wave, push-oriented institutions will fall by the wayside as more pull-based companies learn to harness the first two waves of changes through innovations to institutional architectures (such as the ability to foster and participate in creation spaces where performance accelerates as more participants join). Over time, these innovations will enable firms to develop and adopt new ways of creating and capturing wealth in the digital era. Shareholder value and ROA may initially deteriorate, but these things will eventually improve as firms harness the foundational and flow forces of the first two waves of change and accelerate their rate of performance improvement. We hope that you now understand that we’re in the midst of a radical transformation—the Big Shift.

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Capitalism Without Capital: The Rise of the Intangible Economy
by Jonathan Haskel and Stian Westlake
Published 7 Nov 2017

Financialization is the growing importance of norms, metrics, and incentives from the financial sector to the wider economy. Some of the concerns expressed are that, for example, managers are increasingly awarded stock options to align their incentives with those of shareholders; companies are often explicitly managed to increase short-term shareholder value; and financial engineering, such as share buybacks and earnings management, has become a more important part of senior managers’ jobs. The end result is that rather than finance serving business, business serves finance: the tail wags the dog. What John Kay described as “obliquity,” the idea that making money was a consequence of, or a second-order benefit of, serving one’s customers and building good businesses, is driven out (Kay 2010).

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It pioneered new ways of doing business that other firms profitably adopted, and ICI-trained chemists, engineers, and managers filled the ranks of British industry. But things began to change in the 1990s: frightened by a takeover threat from an activist investor, ICI began to focus on the pursuit of short-term shareholder value. To this end, it plunged enthusiastically into the M&A market, divesting or selling billions of dollars’ worth of divisions, and acquiring several others. The pursuit of focus and efficiency proved tough, and the company faced a growing debt burden and problems integrating its acquisitions. By the 2000s ICI’s decline was obvious, and few were surprised when what remained of the company was bought by Akzo Nobel in 2008 for a mere (relative to its past value) £8 billion.

pages: 357 words: 91,331

I Will Teach You To Be Rich
by Sethi, Ramit
Published 22 Mar 2009

Daniel Solin, author of The Smartest Investment Book You’ll Ever Read, describes a study that illustrates how financial-ratings companies like Morningstar, which provides stock ratings that investors can use to get a quick take on many stocks’ performance, continue to give thumbsup ratings even as the companies they purport to be evaluating crater and lose billions of dollars of shareholder value. (Aside from their stock ratings, they do have an excellent website with tools that I use all the time. So it’s not like they’re all bad.) The study found the following: Three Legendary Investors Who Prove Me Wrong—Sort of * * * Now, there are indeed investors who have beaten the market consistently for years.

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If you feel this way, sure, use a small part of your portfolio for “high risk” investing—but treat it as fun money, not as money you need. I set aside about 10 percent of my portfolio for fun money, which includes particular stocks I like, know, and use (companies like Amazon.com that focus on customer service, which I believe drives shareholder value); sector funds that let me focus on particular industries (I own an index fund that focuses on health care); and even angel investing, which is personal venture-capital investing for private ultra-early-stage companies. (I occasionally see these angel opportunities because I work in Silicon Valley and have friends who start companies and look for early friends-and-family money.)

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The Connected Company
by Dave Gray and Thomas Vander Wal
Published 2 Dec 2014

Hunt, “Urban Density and the Rate of Invention,” by the Federal Reserve Bank of Philadephia, Working Paper, 2006, http://www.phil.frb.org/research-and-data/publications/working-pa-pers/2006/wp06-14.pdf. PRODUCTIVITY Jonah Lehrer, “A Physicist Solves the City,” The New York Times, December 17, 2010. Chapter 9. Connected companies have a purpose Maximizing shareholder value is the dumbest idea in the world. — Jack GE Welch Learning happens in the context of a goal, an attempt to do something or to make something happen. Without a purpose to drive learning, it is haphazard—not much more useful than blind flailing about. The purpose of a company is to do something for customers while making a profit.

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This is a bit of a simplification, but at a high level, customers care about service, shareholders care about profit, and employees care about pay and work conditions. These things are dependent on one another. Some are causes—drivers of value—and some are effects. Customer demand for services, and those services provided well, is the primary driver of value for any organization. It is the cause of growth, profits, and shareholder value. Employee pay and work conditions, profits, and returns to shareholders are all effects—things that result from the primary driver of delivering value to customers. Many companies get this backwards. Company executives focus on pleasing shareholders, because it’s the shareholders that drive the stock price of a company.

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Frugal Innovation: How to Do Better With Less
by Jaideep Prabhu Navi Radjou
Published 15 Feb 2015

This is particularly true of millennials, who are more sceptical of big business and less loyal to their employers compared with earlier generations. Over half of the millennials surveyed by Deloitte, one of the big four professional services firms, believe that innovation and social development, rather than maximising profit and shareholder value, should be the primary purpose of business. Yet the majority also believe that business is collectively most able to solve pressing social problems. Large, frugal companies now have a means to attract this values-conscious generation. None of this suggests that the transformation will be easy.

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MacArthur Foundation 14 John Deere 67 John Lewis 195 Johnson & Johnson 100, 111 Johnson, Warren 98 Jones, Don 112 jugaad (frugal ingenuity) 199, 202 Jugaad Innovation (Radjou, Prabhu and Ahuja, 2012) xvii, 17 just-in-time design 33–4 K Kaeser, Joe 217 Kalanick, Travis 163 Kalundborg (Denmark) 160 kanju 201 Karkal, Shamir 124 Kaufman, Ben 50–1, 126 Kawai, Daisuke 29–30 Kelly, John 199–200 Kennedy, President John 138 Kenya 57, 200–1 key performance indicators see KPIs Khan Academy 16–17, 113–14, 164 Khan, Salman (Sal) 16–17, 113–14 Kickstarter 17, 48, 137, 138 KieranTimberlake 196 Kimberly-Clark 25, 145 Kingfisher 86–7, 91, 97, 157, 158–9, 185–6, 192–3, 208 KissKissBankBank 17, 137 Knox, Steve 145 Knudstorp, Jørgen Vig 37, 68, 69 Kobori, Michael 83, 100 KPIs (key performance indicators) 38–9, 67, 91–2, 185–6, 208 Kuhndt, Michael 194 Kurniawan, Arie 151–2 L La Chose 108 La Poste 92–3, 157 La Ruche qui dit Oui 137 “labs on a chip” 52 Lacheret, Yves 173–5 Lada 1 laser cutters 134, 166 Laskey, Alex 119 last-mile challenge 57, 146, 156 L’Atelier 168–9 Latin America 161 lattice organisation 63–4 Laury, Véronique 208 Laville, Elisabeth 91 Lawrence, Jamie 185, 192–3, 208 LCA (life-cycle assessment) 196–7 leaders 179, 203–5, 214, 217 lean manufacturing 192 leanness 33–4, 41, 42, 170, 192 Learnbox 114 learning by doing 173, 179 learning organisations 179 leasing 123 Lee, Deishin 159 Lego 51, 126 Lego Group 37, 68, 69, 144 Legrand 157 Lenovo 56 Leroy, Adolphe 127 Leroy Merlin 127–8 Leslie, Garthen 150–1 Lever, William Hesketh 96 Levi Strauss & Co 60, 82–4, 100, 122–3 Lewis, Dijuana 212 life cycle of buildings 196 see also product life cycle life-cycle assessment (LCA) 196–7 life-cycle costs 12, 24, 196 Lifebuoy soap 95, 97 lifespan of companies 154 lighting 32, 56, 123, 201 “lightweighting” 47 linear development cycles 21, 23 linear model of production 80–1 Link 131 littleBits 51 Livi, Daniele 88 Livi, Vittorio 88 local communities 52, 57, 146, 206–7 local markets 183–4 Local Motors 52, 129, 152 local solutions 188, 201–2 local sourcing 51–2, 56, 137, 174, 181 localisation 56, 137 Locavesting (Cortese, 2011) 138 Logan car 2–3, 12, 179, 198–9 logistics 46, 57–8, 161, 191, 207 longevity 121, 124 Lopez, Maribel 65–6 Lopez Research 65–6 L’Oréal 174 Los Alamos National Laboratory 170 low-cost airlines 60, 121 low-cost innovation 11 low-income markets 12–13, 161, 203, 207 Lowry, Adam 81–2 M m-health 109, 111–12 M-KOPA 201 M-Pesa 57, 201 M3D 48, 132 McDonough Braungart Design Chemistry (MBDC) 84 McDonough, William 82 McGregor, Douglas 63 MacGyvers 17–18, 130, 134, 167 McKelvey, Jim 135 McKinsey & Company 81, 87, 209 mainstream, frugal products in 216 maintenance 66, 75, 76, 124, 187 costs 48–9, 66 Mainwaring, Simon 8 Maistre, Christophe de 187–8, 216 Maker Faire 18, 133–4 Maker platform 70 makers 18, 133–4, 145 manufacturing 20th-century model 46, 55, 80–1 additive 47–9 continuous 44–5 costs 47, 48, 52 decentralised 9, 44, 51–2 frugal 44–54 integration with logistics 57–8 new approaches 50–4 social 50–1 subtractive method 48 tools for 47, 47–50 Margarine Unie 96 market 15, 28, 38, 64, 186, 189, 192 R&D and 21, 26, 33, 34 market research 25, 61, 139, 141 market share 100 marketing 21–2, 24, 36, 61–3, 91, 116–20, 131, 139 and R&D 34, 37, 37–8 marketing teams 143, 150 markets 12–13, 42, 62, 215 see also emerging markets Marks & Spencer (M&S) 97, 215 Plan A 90, 156, 179–81, 183–4, 186–7, 214 Marriott 140 Mars 57, 158–9, 161 Martin Marietta 159 Martin, Tod 154 mass customisation 9, 46, 47, 48, 57–8 mass market 189 mass marketing 21–2 mass production 9, 46, 57, 58, 74, 129, 196 Massachusetts Institute of Technology see MIT massive open online courses see MOOCs materials 3, 47, 48, 73, 92, 161 costs 153, 161, 190 recyclable 74, 81, 196 recycled 77, 81–2, 83, 86, 89, 183, 193 renewable 77, 86 repurposing 93 see also C2C; reuse Mayhew, Stephen 35, 36 Mazoyer, Eric 90 Mazzella, Frédéric 163 MBDC (McDonough Braungart Design Chemistry) 84 MDI 16 measurable goals 185–6 Mechanical Engineer Laboratory (MEL) 52 “MEcosystems” 154–5, 156–8 Medicare 110 medication 111–12 Medicity 211 MedStartr 17 MEL (Mechanical Engineer Laboratory) 52 mental models 2, 193–203, 206, 216 Mercure 173 Merlin, Rose 127 Mestrallet, Gérard 53, 54 method (company) 81–2 Mexico 38, 56 Michelin 160 micro-factories 51–2, 52, 66, 129, 152 micro-robots 52 Microsoft 38 Microsoft Kinect 130 Microsoft Word 24 middle classes 197–8, 216 Migicovsky, Eric 137–8 Mikkiche, Karim 199 millennials 7, 14, 17, 131–2, 137, 141, 142 MindCET 165 miniaturisation 52, 53–4 Mint.com 125 MIT (Massachusetts Institute of Technology) 44–5, 107, 130, 134, 202 mobile health see m-health mobile phones 24, 32, 61, 129–30, 130, 168, 174 emerging market use 198 infrastructure 56, 198 see also smartphones mobile production units 66–7 mobile technologies 16, 17, 103, 133, 174, 200–1, 207 Mocana 151 Mochon, Daniel 132 modular design 67, 90 modular production units 66–7 Modularer Querbaukasten see MQB “mompreneurs” 145 Mondelez 158–9 Money Dashboard 125 Moneythink 162 monitoring 65–6, 106, 131 Monopoly 144 MOOCs (massive open online courses) 60, 61, 112, 113, 114, 164 Morieux, Yves 64 Morocco 207 Morris, Robert 199–200 motivation, employees 178, 180, 186, 192, 205–8 motivational approaches to shaping consumer behaviour 105–6 Motorola 56 MQB (Modularer Querbaukasten) 44, 45–6 Mulally, Alan 70, 166 Mulcahy, Simon 157 Mulliez family 126–7 Mulliez, Vianney 13, 126 multi-nodal innovation 202–3 Munari, Bruno 93 Murray, Mike 48–9 Musk, Elon 172 N Nano car 119, 156 National Geographic 102 natural capital, loss of 158–9 Natural Capital Leaders Platform 158–9 natural resources 45, 86 depletion 7, 72, 105, 153, 158–9 see also resources NCR 55–6 near-shoring 55 Nelson, Simon 113 Nemo, Sophie-Noëlle 93 Nest Labs 98–100, 103 Nestlé 31, 44, 68, 78, 94, 158–9, 194, 195 NetPositive plan 86, 208 networking 152–3, 153 new materials 47, 92 New Matter 132 new technologies 21, 27 Newtopia 32 next-generation customers 121–2 next-generation manufacturing techniques 44–6, 46–7 see also frugal manufacturing Nigeria 152, 197–8 Nike 84 NineSigma 151 Nissan 4, 4–5, 44, 199 see also Renault-Nissan non-governmental organisations 167 non-profit organisations 161, 162, 202 Nooyi, Indra 217 Norman, Donald 120 Norris, Greg 196 North American companies 216–17 North American market 22 Northrup Grumman 68 Norton, Michael 132 Norway 103 Novartis 44–5, 215 Novotel 173, 174 nudging 100, 108, 111, 117, 162 Nussbaum, Bruce 140 O O2 147 Obama, President Barack 6, 8, 13, 134, 138, 208 obsolescence, planned 24, 121 offshoring 55 Oh, Amy 145 Ohayon, Elie 71–2 Oliver Wyman 22 Olocco, Gregory 206 O’Marah, Kevin 58 on-demand services 39, 124 online communities 31, 50, 61, 134 online marketing 143 online retailing 60, 132 onshoring 55 Opel 4 open innovation 104, 151, 152, 153, 154 open-source approach 48, 129, 134, 135, 172 open-source hardware 51, 52, 89, 130, 135, 139 open-source software 48, 130, 132, 144–5, 167 OpenIDEO 142 operating costs 45, 215 Opower 103, 109, 119 Orange 157 Orbitz 173 organisational change 36–7, 90–1, 176, 177–90, 203–8, 213–14, 216 business models 190–3 mental models 193–203 organisational culture 36–7, 170, 176, 177–9, 213–14, 217 efficacy focus 181–3 entrepreneurial 76, 173 see also organisational change organisational structure 63–5, 69 outsourcing 59, 143, 146 over-engineering 27, 42, 170 Overby, Christine 25 ownership 9 Oxylane Group 127 P P&G (Procter & Gamble) 19, 31, 58, 94, 117, 123, 145, 195 packaging 57, 96, 195 Page, Larry 63 “pain points” 29, 30, 31 Palmer, Michael 212 Palo Alto Junior League 20 ParkatmyHouse 17, 63, 85 Parker, Philip 61 participation, customers 128–9 partner ecosystems 153, 154, 200 partners 65, 72, 148, 153, 156–8 sharing data with 59–60 see also distributors; hyper-collaboration; suppliers Partners in Care Foundation 202 partnerships 41, 42, 152–3, 156–7, 171–2, 174, 191 with SMBs 173, 174, 175 with start-ups 20, 164–5, 175 with suppliers 192–3 see also hyper-collaboration patents 171–2 Payne, Alex 124 PE International 196 Pearson 164–5, 167, 181–3, 186, 215 Pebble 137–8 peer-to-peer economic model 10 peer-to-peer lending 10 peer-to-peer sales 60 peer-to-peer sharing 136–7 Pélisson, Gérard 172–3 PepsiCo 38, 40, 179, 190, 194, 215 performance 47, 73, 77, 80, 95 of employees 69 Pernod Ricard 157 personalisation 9, 45, 46, 48, 62, 129–30, 132, 149 Peters, Tom 21 pharmaceutical industry 13, 22, 23, 33, 58, 171, 181 continuous manufacturing 44–6 see also GSK Philippines 191 Philips 56, 84, 100, 123 Philips Lighting 32 Picaud, Philippe 122 Piggy Mojo 119 piggybacking 57 Piketty, Thomas 6 Plan A (M&S) 90, 156, 179–81, 183–4, 186–7, 214 Planet 21 (Accor) 174–5 planned obsolescence 24, 121 Plastyc 17 Plumridge, Rupert 18 point-of-sale data 58 Poland 103 pollution 74, 78, 87, 116, 187, 200 Polman, Paul 11, 72, 77, 94, 203–5, 217 portfolio management tools 27, 33 Portugal 55, 103 postponement 57–8 Potočnik, Janez 8, 79 Prabhu, Arun 25 Prahalad, C.K. 12 predictive analytics 32–3 predictive maintenance 66, 67–8 Priceline 173 pricing 81, 117 processes digitising 65–6 entrenched 14–16 re-engineering 74 simplifying 169, 173 Procter & Gamble see P&G procurement priorities 67–8 product life cycle 21, 75, 92, 186 costs 12, 24, 196 sustainability 73–5 product-sharing initiatives 87 production costs 9, 83 productivity 49, 59, 65, 79–80, 153 staff 14 profit 14, 105 Progressive 100, 116 Project Ara 130 promotion 61–3 Propeller Health 111 prosumers xix–xx, 17–18, 125, 126–33, 136–7, 148, 154 empowering and engaging 139–46 see also horizontal economy Protomax 159 prototypes 31–2, 50, 144, 152 prototyping 42, 52, 65, 152, 167, 192, 206 public 50–1, 215 public sector, working with 161–2 publishers 17, 61 Pullman 173 Puma 194 purchasing power 5–6, 216 pyramidal model of production 51 pyramidal organisations 69 Q Qarnot Computing 89 Qualcomm 84 Qualcomm Life 112 quality 3, 11–12, 15, 24, 45, 49, 82, 206, 216 high 1, 9, 93, 198, 216 measure of 105 versus quantity 8, 23 quality of life 8, 204 Quicken 19–21 Quirky 50–1, 126, 150–1, 152 R R&D 35, 67, 92, 151 big-ticket programmes 35–6 and business development 37–8 China 40, 188, 206 customer focus 27, 39, 43 frugal approach 12, 26–33, 82 global networks 39–40 incentives 38–9 industrial model 2, 21–6, 33, 36, 42 market-focused, agile model 26–33 and marketing 34, 37, 37–8 recommendations for managers 34–41 speed 23, 27, 34, 149 spending 15, 22, 23, 28, 141, 149, 152, 171, 187 technology culture 14–15, 38–9 see also Air Liquide; Ford; GSK; IBM; immersion; Renault; SNCF; Tarkett; Unilever R&D labs 9, 21–6, 70, 149, 218 in emerging markets 40, 188, 200 R&D teams 26, 34, 38–9, 65, 127, 150, 194–5 hackers as 142 innovation brokering 168 shaping customer behaviour 120–2 Raspberry Pi 135–6, 164 Ratti, Carlo 107 raw materials see materials real-time demand signals 58, 59 Rebours, Christophe 157–8 recession 5–6, 6, 46, 131, 180 Reckitt Benckiser 102 recommendations for managers flexing assets 65–71 R&D 34–41 shaping consumer behaviour 116–24 sustainability 90–3 recruiting 70–1 recyclable materials 74, 81, 196 recyclable products 3, 73, 159, 195–6 recycled materials 77, 81–2, 83, 86, 89, 183, 193 recycling 8, 9, 87, 93, 142, 159 e-waste 87–8 electronic and electrical goods (EU) 8, 79 by Tarkett 73–7 water 83, 175 see also C2C; circular economy Recy’Go 92–3 regional champions 182 regulation 7–8, 13, 78–9, 103, 216 Reich, Joshua 124 RelayRides 17 Renault 1–5, 12, 117, 156–7, 179 Renault-Nissan 4–5, 40, 198–9, 215 renewable energy 8, 53, 74, 86, 91, 136, 142, 196 renewable materials 77, 86 Replicator 132 repurposing 93 Requardt, Hermann 189 reshoring 55–6 resource constraints 4–5, 217 resource efficiency 7–8, 46, 47–9, 79, 190 Resource Revolution (Heck, Rogers and Carroll, 2014) 87–8 resources 40, 42, 73, 86, 197, 199 consumption 9, 26, 73–7, 101–2 costs 78, 203 depletion 7, 72, 105, 153, 158–9 reducing use 45, 52, 65, 73–7, 104, 199, 203 saving 72, 77, 200 scarcity 22, 46, 72, 73, 77–8, 80, 158–9, 190, 203 sharing 56–7, 159–61, 167 substitution 92 wasting 169–70 retailers 56, 129, 214 “big-box” 9, 18, 137 Rethink Robotics 49 return on investment 22, 197 reuse 9, 73, 76–7, 81, 84–5, 92–3, 200 see also C2C revenues, generating 77, 167, 180 reverse innovation 202–3 rewards 37, 178, 208 Riboud, Franck 66, 184, 217 Rifkin, Jeremy 9–10 robots 47, 49–50, 70, 144–5, 150 Rock Health 151 Rogers, Jay 129 Rogers, Matt 87–8 Romania 2–3, 103 rookie mindset 164, 168 Rose, Stuart 179–80, 180 Roulin, Anne 195 Ryan, Eric 81–2 Ryanair 60 S S-Oil 106 SaaS (software as a service) 60 Saatchi & Saatchi 70–1 Saatchi & Saatchi + Duke 71–2, 143 sales function 15, 21, 25–6, 36, 116–18, 146 Salesforce.com 157 Santi, Paolo 108 SAP 59, 186 Saunders, Charles 211 savings 115 Sawa Orchards 29–31 Scandinavian countries 6–7 see also Norway Schmidt, Eric 136 Schneider Electric 150 Schulman, Dan 161–2 Schumacher, E.F. 104–5, 105 Schweitzer, Louis 1, 2, 3, 4, 179 SCM (supply chain management) systems 59 SCOR (supply chain operations reference) model 67 Seattle 107 SEB 157 self-sufficiency 8 selling less 123–4 senior managers 122–4, 199 see also CEOs; organisational change sensors 65–6, 106, 118, 135, 201 services 9, 41–3, 67–8, 124, 149 frugal 60–3, 216 value-added 62–3, 76, 150, 206, 209 Shapeways 51, 132 shareholders 14, 15, 76, 123–4, 180, 204–5 sharing 9–10, 193 assets 159–61, 167 customers 156–8 ideas 63–4 intellectual assets 171–2 knowledge 153 peer-to-peer 136–9 resources 56–7, 159–61, 167 sharing economy 9–10, 17, 57, 77, 80, 84–7, 108, 124 peer-to-peer sharing 136–9 sharing between companies 159–60 shipping costs 55, 59 shopping experience 121–2 SIEH hotel group 172–3 Siemens 117–18, 150, 187–9, 215, 216 Sigismondi, Pier Luigi 100 Silicon Valley 42, 98, 109, 150, 151, 162, 175 silos, breaking out of 36–7 Simple Bank 124–5 simplicity 8, 41, 64–5, 170, 194 Singapore 175 Six Sigma 11 Skillshare 85 SkyPlus 62 Small is Beautiful (Schumacher, 1973) 104–5 “small is beautiful” values 8 small and medium-sized businesses see SMBs Smart + Connected Communities 29 SMART car 119–20 SMART strategy (Siemens) 188–9 smartphones 17, 100, 106, 118, 130, 131, 135, 198 in health care 110, 111 see also apps SmartScan 29 SMBs (small and medium-sized businesses) 173, 174, 175, 176 SMS-based systems 42–3 SnapShot 116 SNCF 41–3, 156–7, 167 SoapBox 28–9 social business model 206–7 social comparison 109 social development 14 social goals 94 social learning 113 social manufacturing 47, 50–1 social media 16, 71, 85, 106, 108, 168, 174 for marketing 61, 62, 143 mining 29, 58 social pressure of 119 tools 109, 141 and transaction costs 133 see also Facebook; social networks; Twitter social networks 29, 71, 72, 132–3, 145, 146 see also Facebook; Twitter social pressure 119 social problems 82, 101–2, 141, 142, 153, 161–2, 204 social responsibility 7, 10, 14, 141, 142, 197, 204 corporate 77, 82, 94, 161 social sector, working with 161–2 “social tinkerers” 134–5 socialising education 112–14 Sofitel 173 software 72 software as a service (SaaS) 60 solar power 136, 201 sourcing, local 51–2, 56 Southwest Airlines 60 Spain 5, 6, 103 Spark 48 speed dating 175, 176 spending, on R&D 15, 22, 23, 28, 141, 149, 152, 171, 187 spiral economy 77, 87–90 SRI International 49, 52 staff see employees Stampanato, Gary 55 standards 78, 196 Starbucks 7, 140 start-ups 16–17, 40–1, 61, 89, 110, 145, 148, 150, 169, 216 investing in 137–8, 157 as partners 42, 72, 153, 175, 191, 206 see also Nest Labs; Silicon Valley Statoil 160 Steelcase 142 Stem 151 Stepner, Diana 165 Stewart, Emma 196–7 Stewart, Osamuyimen 201–2 Sto Corp 84 Stora Enso 195 storytelling 112, 113 Strategy& see Booz & Company Subramanian, Prabhu 114 substitution of resources 92 subtractive manufacturing 48 Sun Tzu 158 suppliers 67–8, 83, 148, 153, 167, 176, 192–3 collaboration with 76, 155–6 sharing with 59–60, 91 visibility 59–60 supply chain management see SCM supply chain operations reference (SCOR) model 67 supply chains 34, 36, 54, 65, 107, 137, 192–3 carbon footprint 156 costs 58, 84 decentralisation 66–7 frugal 54–60 integrating 161 small-circuit 137 sustainability 137 visibility 34, 59–60 support 135, 152 sustainability xix, 9, 12, 72, 77–80, 82, 97, 186 certification 84 as competitive advantage 80 consumers and 95, 97, 101–4 core design principle 82–4, 93, 195–6 and growth 76, 80, 104–5 perceptions of 15–16, 80, 91 recommendations for managers 90–3 regulatory demand for 78–9, 216 standard bearers of 80, 97, 215 see also Accor; circular economy; Kingfisher; Marks & Spencer; Tarkett; Unilever sustainable design 82–4 see also C2C sustainable distribution 57, 161 sustainable growth 72, 76–7 sustainable lifestyles 107–8 Sustainable Living Plan (Unilever) 94–7, 179, 203–4 sustainable manufacturing 9, 52 T “T-shaped” employees 70–1 take-back programmes 9, 75, 77, 78 Tally 196–7 Tarkett 73–7, 80, 84 TaskRabbit 85 Tata Motors 16, 119 Taylor, Frederick 71 technical design 37–8 technical support, by customers 146 technology 2, 14–15, 21–2, 26, 27 TechShop 9, 70, 134–5, 152, 166–7 telecoms sector 53, 56 Telefónica 147 telematic monitoring 116 Ternois, Laurence 42 Tesco 102 Tesla Motors 92, 172 testing 28, 42, 141, 170, 192 Texas Industries 159 Textoris, Vincent 127 TGV Lab 42–3 thermostats 98–100 thinking, entrenched 14–16 Thompson, Gav 147 Timberland 90 time 4, 7, 11, 41, 72, 129, 170, 200 constraints 36, 42 see also development cycle tinkerers 17–18, 133–5, 144, 150, 152, 153, 165–7, 168 TiVo 62 Tohamy, Noha 59–60 top-down change 177–8 top-down management 69 Total 157 total quality management (TQM) 11 total volatile organic compounds see TVOC Toyota 44, 100 Toyota Sweden 106–7 TQM (total quality management) 11 traffic 108, 116, 201 training 76, 93, 152, 167, 170, 189 transaction costs 133 transparency 178, 185 transport 46, 57, 96, 156–7 Transport for London 195 TrashTrack 107 Travelocity 174 trial and error 173, 179 Trout, Bernhardt 45 trust 7, 37, 143 TVOC (total volatile organic compounds) 74, 77 Twitter 29, 62, 135, 143, 147 U Uber 136, 163 Ubuntu 202 Uchiyama, Shunichi 50 UCLA Health 202–3 Udacity 61, 112 UK 194 budget cuts 6 consumer empowerment 103 industrial symbiosis 160 savings 115 sharing 85, 138 “un-management” 63–4, 64 Unboundary 154 Unilever 11, 31, 57, 97, 100, 142, 203–5, 215 and sustainability 94–7, 104, 179, 203–4 University of Cambridge Engineering Design Centre (EDC) 194–5 Inclusive Design team 31 Institute for Sustainability Leadership (CISL) 158–9 upcycling 77, 88–9, 93, 159 upselling 189 Upton, Eben 135–6 US 8, 38, 44, 87, 115, 133, 188 access to financial services 13, 17, 161–2 ageing population 194 ageing workforce 13 commuting 131 consumer spending 5, 6, 103 crowdfunding 137–8, 138 economic pressures 5, 6 energy use 103, 119, 196 environmental awareness 7, 102 frugal innovation in 215–16, 218 health care 13, 110, 208–13, 213 intellectual property 171 onshoring 55 regulation 8, 78, 216 sharing 85, 138–9 shifting production from China to 55, 56 tinkering culture 18, 133–4 user communities 62, 89 user interfaces 98, 99 user-friendliness 194 Utopies 91 V validators 144 value 11, 132, 177, 186, 189–90 aspirational 88–9 to customers 6–7, 21, 77, 87, 131, 203 from employees 217 shareholder value 14 value chains 9, 80, 128–9, 143, 159–60, 190, 215 value engineering 192 “value gap” 54–5 value-added services 62–3, 76, 150, 206, 209 values 6–7, 14, 178, 205 Vandebroek, Sophie 169 Vasanthakumar, Vaithegi 182–3 Vats, Tanmaya 190, 192 vehicle fleets, sharing 57, 161 Verbaken, Joop 118 vertical integration 133, 154 virtual prototyping 65 virtuous cycle 212–13 visibility 34, 59–60 visible learning 112–13 visioning sessions 193–4 visualisation 106–8 Vitality 111 Volac 158–9 Volkswagen 4, 44, 45–6, 129, 144 Volvo 62 W wage costs 48 wages, in emerging markets 55 Waitrose, local suppliers 56 Walker, James 87 walking the walk 122–3 Waller, Sam 195 Walmart 9, 18, 56, 162, 216 Walton, Sam 9 Wan Jia 144 Washington DC 123 waste 24, 87–9, 107, 159–60, 175, 192, 196 beautifying 88–9, 93 e-waste 24, 79, 87–8, 121 of energy 119 post-consumer 9, 75, 77, 78, 83 reducing 47, 74, 85, 96, 180, 209 of resources 169–70 in US health-care system 209 see also C2C; recycling; reuse water 78, 83, 104, 106, 158, 175, 188, 206 water consumption 79, 82–3, 100, 196 reducing 74, 75, 79, 104, 122–3, 174, 183 wealth 105, 218 Wear It Share It (Wishi) 85 Weijmarshausen, Peter 51 well-being 104–5 Wham-O 56 Whirlpool 36 “wicked” problems 153 wireless technologies 65–6 Wiseman, Liz 164 Wishi (Wear It Share It) 85 Witty, Andrew 35, 35–6, 37, 39, 217 W.L.

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The Investopedia Guide to Wall Speak: The Terms You Need to Know to Talk Like Cramer, Think Like Soros, and Buy Like Buffett
by Jack (edited By) Guinan
Published 27 Jul 2009

A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it is tough to develop 110 The Investopedia Guide to Wall Speak new products, make acquisitions, pay dividends, and reduce debt. FCF is calculated as follows: It also can be calculated by taking operating cash flow and subtracting capital expenditures. Net Income + Amortization/Depreciation − Changes in Working Capital − Capital Expenditures = Free Cash Flow Investopedia explains Free Cash Flow (FCF) Some people believe that Wall Street focuses too much on earnings while ignoring the “real” cash that a firm generates.

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If an investor uses leverage to make an investment and the investment moves against the investor, his or her loss is much greater than it would have been if the investment had been made with cash; leverage magnifies both gains and losses. In the business world, a company can use leverage to try to generate shareholder 160 The Investopedia Guide to Wall Speak wealth, but if it fails to do so, the interest expense and credit risk of default can destroy shareholder value. Related Terms: • Debt Ratio • Leveraged Buyout—LBO • Operating Leverage • Deleverage • Margin Leverage Ratio What Does Leverage Ratio Mean? (1) Any ratio used to calculate the financial leverage of a company to get an idea of that company’s methods of financing or measure its ability to meet its financial obligations.

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The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing
by Michael J. Mauboussin
Published 14 Jul 2012

Baumer, “Why On-Base Percentage Is a Better Indicator of Future Performance than Batting Average: An Algebraic Proof,” Journal of Quantitative Sports 4, no. 2 (April 2008): article 3. 10. Branch Rickey, “Goodby to Some Old Baseball Ideas,” Life, August 2, 1954, 79–89. 11. Michael Lewis, “The King of Human Error,” Vanity Fair, December 2011. 12. Alfred Rappaport, Creating Shareholder Value: A Guide for Managers and Investors, Revised and Updated (New York: Free Press, 1998); and Anant K. Sundaram and Andrew C. Inkpen, “The Corporate Objective Revisited,” Organization Science 15, no. 3 (May–June 2004): 350–363. William Starbuck argues that performance measures are important not because they correlate with desired factors but rather because they can alter performance; see William H.

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Safe Patients, Smart Hospitals: How One Doctor's Checklist Can Help Us Change Health Care from the Inside Out. New York: Hudson Street Books, 2010. Rabin, Matthew, and Dimitri Vayanos. “The Gambler's Fallacy and Hot-Hand Fallacies: Theory and Application.” Review of Economic Studies 77, no. 2 (April 2010): 730–778. Rappaport, Alfred. Creating Shareholder Value: A Guide for Managers and Investors, Revised and Updated. New York: Free Press, 1998. Rappaport, Alfred. “New Thinking on How to Link Executive Pay with Performance.” Harvard Business Review, March–April 1999, 91–101. Rappaport, Alfred, and Michael J. Mauboussin. Expectations Investing: Reading Stock Prices for Better Returns.

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Are Chief Executives Overpaid?
by Deborah Hargreaves
Published 29 Nov 2018

But this collection of well-meaning efforts and reports did little to reverse or even slow down the trend towards growth in excessive remuneration. With the 2006 Companies Act, the longest piece of legislation to be passed into British law (up to that point), Britain’s Labour government tried to go beyond shareholder value in its definition of a company’s purpose. Section 172 of the Companies Act, which is the basis for public company law in the UK, states quite clearly: ‘A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to …’.

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Too big to fail: the inside story of how Wall Street and Washington fought to save the financial system from crisis--and themselves
by Andrew Ross Sorkin
Published 15 Oct 2009

The firm, the reporter elaborated, had also described its extraordinary spin-off plans in its press release. When Fleming returned to his room, he got a colleague to send him the announcement, which included an important headline buried at the bottom: “The firm remains committed to examining all strategic alternatives to maximize shareholder value,” which meant that it was open to just about anything. He knew the company had been quietly shopping pieces of itself, but that statement effectively made it official, at least to those paying attention. Lehman, the entire firm, was up for sale. From his days as a merger banker focusing on financial services, he knew that if Lehman was on the auction block, Bank of America would be the likely buyer.

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Given the conversation he’d had with Dan Jester at 6:00 that morning, however, it was looking increasingly likely that AIG and the global financial system were now in such peril that the government would have no choice but to intervene. Paulson had seen the panic gripping the markets in the past twenty-four hours, which was duly reflected in the headlines on every newsstand. That morning’s Washington Post was typical of the tone of the coverage: “Stocks Plunge as Crisis Intensifies; AIG at Risk; $700 Billion in Shareholder Value Vanishes.” The Dow Jones Industrial Average had slumped 504.48 points on Monday, the biggest point decline for the index since September 17, 2001, when trading started up again after the September 11 terrorist attacks. AIG’s stock had fallen 65 percent to close at $4.76. By 7:45 a.m., Ben Bernanke was in his office preparing for the Federal Open Market Committee meeting that was due to begin forty-five minutes later in the boardroom just down the hall from his office.

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I respectfully suggest to you, and to the Board, that the continuing refusal to work together to save this great company is far more important than any concern over personal positions or perceptions. I do not know whether or not it is now too late to save AIG. However, we owe it to AIG’s shareholders, creditors and our country to try. Since you became Chairman of AIG, you and the Board have presided over the virtual destruction of shareholder value built up over 35 years. It is not my intention to try to point fingers or be critical. My only point is that under the circumstance, I am truly bewildered at the unwillingness of you and the Board to accept my help. Geithner began to prepare in his office for a conference call with Bernanke.

Digital Accounting: The Effects of the Internet and Erp on Accounting
by Ashutosh Deshmukh
Published 13 Dec 2005

Information collection and strategy/plan formulation are followed by strategy execution. There are severe problems in connecting strategy with operational measures. For example, if top management decides that shareholder value will be the guiding principle in conducting business affairs, how do you explain this measure to other stakeholders and how do you measure whether the organization is working toward maximizing shareholder value? There are two parts to this problem: the first is to design appropriate key performance indicators, and the second is to make those available to stakeholders for continuous monitoring and corrective action.

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Retrieved from www.sap.com/ Profitable-to-promise: The next step in the evolution of order promising (white paper). (2003). SAP. Retrieved July 16, 2003, from www.sap.com/ Quality management, SAP solutions in detail. (2003). SAP. Retrieved July 16, 2003, from www.sap.com/ Quantifying the impact of supply chain glitches on shareholder value (white paper). (2003). SAP. Retrieved July 16, 2003, from www.sap.com/ Reddy, R. (2002a). Supply chain intelligence: Know what to expect and how best to achieve it. Intelligent Enterprise. Retrieved July 16, 2003, from www.intelligent enterprise.com/030513/608infosc1_1.jhtml Reddy, R. (2002b).

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Bill Marriott: Success Is Never Final--His Life and the Decisions That Built a Hotel Empire
by Dale van Atta
Published 14 Aug 2019

“The stock market was saying, ‘So what?’ There was no press and no uptick. It was just a big yawn,” Bollenbach recalled.8 So it was time to totally concentrate on the one line in his objectives memo that Bill had highlighted: “We will need to adopt a different approach to creating shareholder value.” It resonated with Bill because that was precisely his job as CEO—to enhance shareholder value. Three days after the last bond sale, Bollenbach and his wife headed north for a weekend at their Connecticut home. That Saturday, May 2, Bollenbach mused over the core issue—the dual nature of Marriott’s business, which confused investors.

…

In July 1993, 85 percent of the stockholders voted in favor of the split as a “special dividend,” giving them one share of each company for every Marriott share they currently owned. The following October 8, after the IRS finally ruled the dividend would be tax-free, Marriott split into the two companies. The increased shareholder value exceeded all expectations. Just before the split had been announced the year before, Marriott stock was trading at $17.12½ a share. The combined price of the two new Marriott companies on opening day was $33.37½ per share—a remarkable 95 percent increase in the otherwise sluggish market. Clearly, the markets had rewarded Marriott for its big surprise, but the PPM lawsuit alleging fraud remained.

pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio
by Victor A. Canto
Published 2 Jan 2005

The article suggested then-CEO 54 UNDERSTANDING ASSET ALLOCATION Jack Welch was timing the realization of investment profits to keep GE’s profits above analyst expectations. Thus, in support of my point, GE was doing what every well-run firm should do: It was taking advantage of a reduction of uncertainty to maximize profits and thus shareholder value. (This article also illustrates how much the world has changed in a short period of time. Only a few years ago, it was okay to say GE was managing its earnings. Saying so now could get a company in trouble.) There’s a simple explanation for the relative performance of small- and largecap stocks over the last 30 years.

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It seems during the 1990s, greedy corporate officers paired themselves with unscrupulous accountants to simultaneously mislead shareholders and the IRS. That was quite a feat. Regardless, the problem can be traced directly from tax incentives to many corporate management changes enacted during the last decade. These changes supposedly included the creation of incentives for management to behave like owners and maximize shareholder value. The motivation for financial engineering generated by compensation plans is fairly straightforward: With the same corporate revenue amount, economies of scale and the tax treatment of different transactions can generate higher aftertax cash flows to investors. So far so good. But add in the accounting treatment of unusual transactions and you have the makings of a very complicated system.

pages: 315 words: 99,065

The Virgin Way: Everything I Know About Leadership
by Richard Branson
Published 8 Sep 2014

We lived just around the corner from a sweet shop and I’d been using my ill-gotten gains to buy chocolate, with Cadbury’s fruit and nut being my particular favourite. One day, though, I’d taken a much bigger ‘loan’ than usual from Dad’s wardrobe bank and promptly done my part to boost Cadbury’s shareholder value. The ‘old lady’ who owned the shop, who at the time was probably all of forty years old, quickly smelled a rat. She said nothing to me, but the next time I was in her shop in the company of my father she staggered me by blurting out, ‘Now I don’t want to get him into any trouble, Mr Branson, but I don’t know where young Richard’s getting all his money from.

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Forget it – that one would never have made it on to the drawing board let alone off the ground. As a public company it suddenly felt like the Virgin genie, something that had always thrived as a free spirit, had suddenly been forced into a bottle and was in serious danger of suffocating there. I realised there and then that, if working to improve shareholder value was now our raison d’être, as opposed to doing the things we wanted to do in the way that we had to do them, then we could never function successfully as a listed company. I’ve always seen a business as a group of people trying to improve other people’s lives – how do you monetise that in a quarterly report?

pages: 417 words: 97,577

The Myth of Capitalism: Monopolies and the Death of Competition
by Jonathan Tepper
Published 20 Nov 2018

By this, he meant that the CEO is “employed” by the shareholders and must serve them above all other parties, including workers, consumers, or society. It was a fine thought, within reason. Shareholders in fact do own the company. The idea that a company's only purpose is to increase profits and maximize shareholder value is now so entrenched that few question it. The Economist claimed Friedman was “the most influential economist of the second half of the twentieth century … possibly of all of it.” Like all religions, once CEOs embraced this new gospel of maximizing shareholder value, a good idea often fell into the fervent hands of zealots. Anything that was a drag on cash for shareholders was cut – worker pay, health care and pensions, and R&D.

pages: 306 words: 97,211

Value Investing: From Graham to Buffett and Beyond
by Bruce C. N. Greenwald , Judd Kahn , Paul D. Sonkin and Michael van Biema
Published 26 Jan 2004

The shareholder would like to benefit from the increasing value of these embedded shares, but it is not always clear how. For TDS shareholders, this was not a problem. First, management owned about half of TDS, meaning that their interests and the interests of ordinary shareholders were pretty well aligned. Also, they had sold the large stake in Aerial to VoiceStream, a sure sign that they were concerned with shareholder value. There was no reason to believe that they would treat the other assets any differently. This arbitrage valuation is only the start of the analysis. TDS Telecom was a real telephone company as well as an investor in the shares of other firms. In 1999 it had operating cash flows of $240 million from revenues of $550.

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Too big to fly under the proverbial radar screen or to move unnoticed into diminutive niches, Price realized that owning a large block of securities could give him a voice in company decisions. He did not have to sit patiently and wait or pray for the executives to turn the company around; he could encourage them to take the steps that actually would, in what must be managements' most cliched phrase, "enhance shareholder value." Even in those instances in which he could use his size to become his own catalyst, Price has operated consistently within the framework of a set of value investment principles that guide his practice. He has followed these principles when Mutual Shares was small, when it was huge, and again today, when the portfolio he runs is small again, by his choice.

pages: 302 words: 100,493

Working Backwards: Insights, Stories, and Secrets From Inside Amazon
by Colin Bryar and Bill Carr
Published 9 Feb 2021

Analysts, competitors, and even customers have tried to sum it up in terms of the Amazon business model or corporate culture, but the simplest and best distillation is still that of founder Jeff Bezos (hereafter referred to as Jeff): “We have an unshakeable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.”2 In other words, while it’s true that shareholder value stems from growth in profit, Amazon believes that long-term growth is best produced by putting the customer first. If you held this conviction, what kind of company would you build? In a talk at the 2018 Air, Space and Cyber Conference, Jeff described Amazon this way: “Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then, finally, taking professional pride in operational excellence.”

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His standards could be maintained only if the company itself, from top to bottom, somehow committed to keeping them at the forefront. In this chapter, we’ll discuss how Amazon established a set of principles and mechanisms, enabling the company to grow from a single founder to several hundred thousand employees3 while remaining stubbornly true to its mission of obsessing over customers to create long-term shareholder value. Some of these methods are well known and have been widely adopted. Some are probably unique to Amazon. What distinguishes Amazon is that its Leadership Principles are deeply ingrained in every significant process and function at the company. In many cases, the principles dictate a way of thinking or doing work that is different from the way that most companies operate.

The Unusual Billionaires
by Saurabh Mukherjea
Published 16 Aug 2016

However, very few listed companies—only nine out of the approximate 1500 firms on my screen—have managed to achieve this! Therefore, I reduce this filter rate modestly to 10 per cent, i.e. I look for companies that have delivered revenue growth of 10 per cent per annum every year for ten consecutive years. Whilst management teams have a natural desire for growth and scale, growth creates shareholder value only when the returns on capital exceed the cost of capital. To put this simply, owners create value for shareholders only when the capital they use in their business generates a higher rate of return than the cost they are paying for using that capital. (b) Why ROCE? Return on Capital Employed (ROCE) is defined as ‘earnings before interest and tax/capital employed’ where capital employed is defined as the fixed assets used by the business, e.g. plant and machinery plus the working capital being used to finance the business.

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Several promoters realize this and hire top-quality executives to run the business on a day-to-day basis, thus freeing themselves to focus solely on identifying the next best opportunity to allocate the firm’s capital. However, effective capital allocation is not just about growing but growing profitably. While management teams have a natural desire for growth and scale, growth creates shareholder value only when the returns on capital exceed the cost of capital. ROCE, therefore, is of utmost importance in assessing a firm’s performance. All five companies and the two banks mentioned in this book have stellar records of capital allocation as can be seen in their consistently high ROCEs and ROEs (for banks).

pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed
by Andrew Jackson (economist) and Ben Dyson (economist)
Published 15 Nov 2012

However, in the UK the five largest banks (HSBC, Barclays, Santander, RBS, Lloyds/HBOS) account for 85% of the current account market (2010), 61% of the savings account market (2010), 64% of the unsecured personal loan market (2009), 74% of the mortgage market (2009) and 84% of liquidity management services to small and medium-sized businesses. (Treasury, 2011)8 As of September 2011, these five banks had just a total of 78 board members.9 The force driving the board members of banks is the need to maximise profit over the short term (to maximise shareholder value). However, what’s profitable in the short term is likely to be bad for the bank and the economy in the longer term. In the short run banks prefer to lend to the unproductive sector: it’s easier, cheaper, and appears to be safer than lending to real business. Indeed, as long as the price of the asset that collateralises the loan is increasing, the bank doesn’t even need to worry about the borrower’s ability to repay, as it can repossess the asset and recover the amount originally lent (the same applies if the bank can securitise the loan.)

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The private sector is often unwilling to engage in the primary scientific research that advances scientific knowledge, due to extremely long and uncertain time periods between project implementation and fruition, the lack of certainty that anything of (marketable) value will be discovered, and the difficulties in monopolising and monetising the profits on anything that is. 6. The requirement to maximise short term shareholder value is passed on to bank staff through bonus and incentive structures. 7. For information about speculation on food prices see Schutter (2010) and Baffes & Haniotis (2010). 8. For this calculation Santander is not one of the five largest providers, and as such the figure instead includes data from Alliance and Leicester. 9.

pages: 343 words: 102,846

Trees on Mars: Our Obsession With the Future
by Hal Niedzviecki
Published 15 Mar 2015

Apple, with its seemingly effortless ability to know what we will want before we even get around to wanting it, is in. But look out, Apple. A mere handful of years after the death of Apple co-founder and CEO Steve Jobs, grumbling about even that company started to surface. “Apple is sacrificing innovation on the altar of shareholder value,” warns the headline of a piece written by a prominent business columnist. The article chastises Apple for “fiddling with updates of existing products” instead of focusing on coming up with the next game-changing revolution in personal technology.9 A search of annual and quarterly reports filed with the United States Securities and Exchange Commission shows corporations mentioned some form of the word “innovation” (defined by Webster’s as “the introduction [presumably in the near future] of something new,”) 33,528 times in 2012, a 64 percent increase from five years before.

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“Apple Profit Doubles, Thanks Largely to 37 Million iPhone Sales in Three Months,” The Globe and Mail, accessed January 31, 2012, http://www.theglobeandmail.com/globe-investor/apple-profit-doubles-thanks-largely-to-37-million-iphone-sales-in-three-months/article2313464/. 9. Eric Reguly, “Apple Is Sacrificing Innovation on the Altar of Shareholder Value,” The Globe and Mail, accessed April 10, 2015, http://www.theglobeandmail.com/report-on-business/apple-is-sacrificing-innovation-on-the-altar-of-shareholder-val-ue/article14056389/. 10. Leslie Kwoh, “You Call That Innovation?,” Wall Street Journal, May 23, 2012, http://online.wsj.com/article/SB10001424052702304791704577418250902309914.html?

pages: 334 words: 104,382

Brotopia: Breaking Up the Boys' Club of Silicon Valley
by Emily Chang
Published 6 Feb 2018

This technology is disrupting businesses from agriculture to manufacturing, finance, and real estate. And it’s not slowing down. We face a near-term future of autonomous cars, augmented reality, and artificial intelligence, and yet we are at risk of embedding gender bias into all of these new algorithms. “It’s bad for shareholder value,” Megan Smith, who has worked as a Google VP and chief technology officer of the United States, told me. “We want the genetic flourishing of all humanity . . . in on making these products, especially as we move to AI and data sciences.” If robots are going to run the world, or at the very least play a hugely critical role in our future, men shouldn’t be programming them alone.

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“Travis can spend eight”: Chris Sacca, “Lowercase Capital Founder Chris Sacca: Studio 1.0,” interview by author, Bloomberg, June 12, 2015, video, 27:43, https://www.bloomberg.com/news/videos/2015-06-13/lowercase-capital-founder-chris-sacca-studio-1-0-06-12-. Women account for almost half: Dan Primack, “Wall Street Outpaces Silicon Valley on Gender Equality,” Axios, Aug. 8, 2017, https://www.axios.com/wall-street-outpaces-silicon-valley-on-gender-equality-2470698125.html. “It’s bad for shareholder value”: Megan Smith, “Former U.S. CTO on Silicon Valley’s Diversity Battle,” interview by author, Bloomberg, Aug. 7, 2017, video, 7:09, https://www.bloomberg.com/news/videos/2017-08-07/ex-u-s-cto-on-silicon-valley-s-diversity-battle-video. “We have a long way to go: Satya Nadella, “Satya Nadella: Bloomberg Studio 1.0 (Full Show),” interview by author, Bloomberg, Sept. 29, 2017, video, 23:40, https://www.bloomberg.com/news/videos/2017-09-29/satya-nadella-bloomberg-studio-1-0-full-show-video.

pages: 380 words: 109,724

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US
by Rana Foroohar
Published 5 Nov 2019

It’s what we’ve been taught to think of as normal, thanks to the ideological triumph of the Chicago School of economic thought, which has, for the past five decades or so, preached—among other things—that the only purpose of corporations should be to maximize profits. The notion of “shareholder value” is shorthand for this idea.12 The maximization of shareholder value is part of the larger process of “financialization,” which I covered in my previous book, Makers and Takers.13 It’s a process that has risen, in tandem with the Chicago School of thinking, since the 1980s, and has created a situation in which markets have become not a conduit for supporting the real economy, as Adam Smith would have said they should be, but rather, the tail that wags the dog.

file:///C:/Documents%20and%...
by vpavan

As an investor, keep in mind that the most forthcoming companies are generally the ones that care the most about their shareholders. If a company's communications are frank and open, then it probably values you as an investor, and is likely to be more vigilant about improving shareholder returns. As you research which stocks to buy, a good proxy for shareholder value is the company's willingness to open itself up. You can view some model Web sites on your own to see what I mean. Some of my favorites are www.Target.com, www.Intel.com, and www.IBM.com. Keep this onslaught of new information in perspective. Just because you can trade like the pros on the basis of what you hear in a Webcast or conference call, it doesn't mean you should.

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And in 1989, AmEx had to apologize publicly to international banker Edmond Safra, as well as give $8 million to charities he named, as compensation for allegedly engaging in dirty tricks to discredit Safra as he tried to set up a bank to compete with American Express. Altogether, AmEx lost some $4 billion in shareholder value under Robinson. Shareholder protests at first fell on deaf ears until a small handful of dissident board members began pressuring Robinson to step down. Robinson finally agreed to give up the CEO position. But rather than step down entirely, he tried to maneuver himself into the chairman's office— a ploy that had worked for many a disgraced CEO in the past.

pages: 898 words: 266,274

The Irrational Bundle
by Dan Ariely
Published 3 Apr 2013

…

pages: 128 words: 38,187

The New Prophets of Capital
by Nicole Aschoff
Published 10 Mar 2015

Instead it is a product of big government in which politicians trying to preserve their cushy jobs develop symbiotic, parasitic relationships with businesspeople too lazy or unimaginative to compete successfully in the marketplace. 10 In Mackey’s story, crony capitalism has been exacerbated by the rising power of the financial sector and shareholder-value ideology—the idea that firms are nothing more than a stream of assets designed to maximize profits for shareholders. Mackey argues that this obsession with greed and profits has “robbed most businesses of their ability to engage and connect with people” and has created “long-term systemic problems” that destroy profitability and that can be deeply damaging to people and to the planet.

Small Change: Why Business Won't Save the World
by Michael Edwards
Published 4 Jan 2010

And they stimulate technological innovation, ideally in areas that beneﬁt the public good. The ways in which businesses approach these tasks have enormous implications for society at large, but in the past, the social and environmental impacts of core business decisions were seen as byproducts — not conscious goals — of companies, which aimed to make a decent proﬁt and build shareholder value. During the 1990s, this assumption began to be questioned by the pioneers of corporate social responsibility, 16 the good, the bad, and the ugly 17 and their thinking laid the groundwork for the appearance of philanthrocapitalism ten years later. By making their social and environmental objectives more explicit, so the theory goes, businesses can increase their positive impact and scale it up through market forces, far beyond the usual nonproﬁt project or government-funded program.

System Error: Where Big Tech Went Wrong and How We Can Reboot
by Rob Reich , Mehran Sahami and Jeremy M. Weinstein
Published 6 Sep 2021

Examining the impact of that mindset is critical to understanding how questions of human well-being and societal flourishing may—or may not—be taken into consideration in the decision-making processes of tech companies. The Optimization Mindset Meets Corporate Growth Though management tools such as OKRs coupled with an optimization mindset have fueled enormous corporate growth and led to the creation of billions of dollars in shareholder value, they also raise important questions: How are the objectives to measure to be chosen? What business and technical choices must be made in the drive to optimize them? And how far should those decisions be taken? The use of OKRs in Google’s YouTube subsidiary was explained by Vice President of Engineering Cristos Goodrow while recounting a realization he had in 2011: As Microsoft CEO Satya Nadella has pointed out: In a world where computing power is nearly limitless, “the true scarce commodity is increasingly human attention.”

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It’s true that all these decisions will lead to problems later on, but you might not have a later on if you take too long to build the product.” Hoffman is no disciple of Milton Friedman, however, as he also wrote, “We believe that the responsibilities of a blitzscaler go beyond simply maximizing shareholder value while obeying the law; you are also responsible for how the actions of your business impact the larger society.” But it can be difficult to fully appreciate the downstream impact of a business if there’s a relentless push to get a product out the door and generate revenue. Jack Dorsey acknowledged as much, tweeting (naturally) in 2018, “Recently we were asked a simple question: could we measure the ‘health’ of conversation on Twitter?

pages: 362 words: 116,497

Palace Coup: The Billionaire Brawl Over the Bankrupt Caesars Gaming Empire
by Sujeet Indap and Max Frumes
Published 16 Mar 2021

And it illustrated one of the key legal principles that would echo through this case: Debtholders’ relationship with the company remains strictly contractual. Any rights they have must be bargained for and embedded in documents. The management and board of a company, in contrast, have fiduciary duties which dictate that they maximize shareholder value. Three days later, on December 17, the exhausted group finally left the Wachtell conference room with the merger and financing documents in place. Penn National’s final bid in the form of cash and stock did not quite hit ninety dollars per share, and the board chose the offer from Apollo/TPG.

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After the presentation, which effectively explained how assets were going to be shuffled out of the OpCo, two Caesars executives leaned in close to each other and half-jokingly wondered about “fraudulent conveyance,” the elephant in the boardroom. Fraudulent conveyance was the idea that either assets or liabilities would be sold or transferred to benefit the shareholders of a company at the expense of creditors. Owners and boards of directors had broad discretion to exercise their so-called “business judgment” to maximize shareholder value. But the law was trickier for debt-laden companies, and solid legal advice was going to be as important in this transaction as Apollo’s financial wizardry. By 2013, Tim Donovan, the Caesars General Counsel, was concerned about how much he could trust Caesars’ lawyers at Paul, Weiss. The firm had advised him that there was no need for independent directors to form a special committee that could recommend and negotiate the Growth Transaction.

pages: 185 words: 43,609

Zero to One: Notes on Startups, or How to Build the Future
by Peter Thiel and Blake Masters
Published 15 Sep 2014

Therefore he’s incentivized to reward himself through the power of possession rather than the value of ownership. Posting good quarterly results will be enough for him to keep his high salary and corporate jet. Misalignment can creep in even if he receives stock compensation in the name of “shareholder value.” If that stock comes as a reward for short-term performance, he will find it more lucrative and much easier to cut costs instead of investing in a plan that might create more value for all shareholders far in the future. Unlike corporate giants, early-stage startups are small enough that founders usually have both ownership and possession.

pages: 141 words: 40,979

The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments
by Pat Dorsey
Published 1 Mar 2008

Retail is a tough business—easy come, easy go. Although I used retailers in this example, I could have picked a smaller technology company just as easily—or really any company without a structural competitive advantage. The point is that unless a company has some kind of economic moat, predicting how much shareholder value it will create in the future is pretty much a crapshoot, regardless of what the historical track record looks like. Looking at the numbers is a start, but it’s only a start. Thinking carefully about the strength of the company’s competitive advantage, and how it will (or won’t) be able to keep the competition at bay, is a critical next step.

pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class
by Paul Pierson and Jacob S. Hacker
Published 14 Sep 2010

Stock options are used in other nations, too, but they are much more often linked to long-term rather than short-term performance, as well as to firm performance relative to industry norms.43 Thus, for instance, options can be designed so that when the rising price of oil drives up the share price of energy companies, CEOs receive extra compensation only if their firm’s performance exceeds industry averages. Defenders of American arrangements argue that they are in the best interests of shareholders.44 By negotiating with executives on behalf of the diffuse interests of those owning stock, this argument goes, boards of directors act as faithful defenders of shareholder value. Many of those who study how this process actually works are more doubtful. Looking at corporate governance in a number of rich democracies, the political economists Peter Gourevitch and James Shinn argue that a better description is “managerism,” a system in which managerial elites are in a strong position to extract resources.45 The financier John Bogle has contended that instead of an “ownership society” in which managers serve owners, the United States is moving toward an “agency society” in which managers serve themselves.46 Two of the nation’s leading experts on corporate compensation, Lucian Bebchuk and Jesse Fried, provide many findings more consistent with a “board capture” view than a “shareholder value” perspective.

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Looking at corporate governance in a number of rich democracies, the political economists Peter Gourevitch and James Shinn argue that a better description is “managerism,” a system in which managerial elites are in a strong position to extract resources.45 The financier John Bogle has contended that instead of an “ownership society” in which managers serve owners, the United States is moving toward an “agency society” in which managers serve themselves.46 Two of the nation’s leading experts on corporate compensation, Lucian Bebchuk and Jesse Fried, provide many findings more consistent with a “board capture” view than a “shareholder value” perspective. In their telling, boards are typically so beholden to CEOs—who influence the nomination of board members and have substantial influence over those members’ pay and perks—they offer little countervailing authority.47 The most revealing findings concern the design of executive compensation.

pages: 654 words: 120,154

The Firm
by Duff McDonald
Published 1 Jun 2014

No wonder that when something like the credit crunch comes along, huge numbers of highly skilled people in compartmentalized worlds are unable to respond to it.”30 What’s more, McKinsey and others wholly endorsed bankers’ move farther out on the risk curve in search of higher returns. Specifically, they were pushing the concept of risk-adjusted return on capital, or RAROC, as well as a notion called “shareholder value added,” or SVA. Both ideas were based on a simple premise. “In theory, if a bank took capital out of a business with low-risk adjusted returns and put it into a business with high-risk adjusted returns, its overall return on shareholder funds should be higher. So would its position in the banking food chain,” explained Kevin Mellyn in Financial Market Meltdown.

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See In Search of Excellence Securities and Exchange Commission (SEC), 315, 316, 317, 318 Securitization of Credit (Rosenthal and Ocampo), 145 Seimens, 148, 161 Servan-Schreiber, Jean-Jacques, 78 7-S framework, 149, 153 sexual discrimination, 207 The Shadow Government (Guttman and Willner), 68, 70 share buyback program, 127 shareholder capitalism, 103–4 shareholder value added (SVA), 289 shareholders committee, McKinsey, 121, 135, 138, 206, 233, 329 Sharer, Kevin, 220 Sharman, Graham, 217, 218 Shaw, Charles, 129 SHC, Inc., 235 Shearson Lehman, 165 Shell Oil, 147–48 Shepard, Steve, 154 Sherman Antitrust Act (1890), 18 Sidebottom, Peter, 254 Silicon Valley, 264, 294 Singh, Manmohan, 312 Skilling, Jeff, 7, 81, 238–46, 248 Sloan, Alfred P., 19, 54 Small Business Administration, 284 Smart Money magazine, 281 The Smartest Guys in the Room (McLean and Elkind), 241, 245 Smith, Adam, 20 Smith, Everett, 58, 76, 80, 94, 100, 101 Smith, Roger, 177, 183, 184 Smith, Yves, 235, 253 society: role of business in, 261–63 Socony Mobil Oil Company, 82, 91 Solow, Robert, 219 Sony Corporation, 114 South African Airlines, 256 Southern California Symphony, 64 Spalding Sporting Goods, 235 Spansion, 309 Special Operating Risk Committee (SORC), McKinsey, 307–8 specialization, 120–23, 142–46, 215 St.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics
by Rod Hill and Anthony Myatt
Published 15 Mar 2010

Ironically, stock options grew out of improvements in economic theory that recognized the importance of imperfect and asymmetric information in causing a potential conflict of interest between owners and management – a conflict referred to as the ‘principal agent’ problem (which we also discuss in Chapter 5).11 This helped fuel the ‘shareholder value’ movement of the 1980s, which aimed to resolve the problem by making management compensation more dependent on 500 400 12,000 Dow Jones Industrial Average Ratio of average CEO total pay (including options valued at grant-date) to average annual earnings of production workers 10,000 8,000 Ratio of average CEO salary and bonus to average annual earnings of production workers 300 200 6,000 4,000 100 0 1970 2,000 0 1974 1978 1982 1986 1990 1994 1998 2002 figure 8.9 Dow Jones Industrial Average and CEO pay relative to average pay, 1970–2002 Source: Hall and Murphy (2003: 63, Figure 2) 192 Dow Jones Industrial Average Ratio of CEO pay to worker pay 600 company stock price performance.

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M., 139–40 Schiller, B. R., 226 Schlosser, Eric, Fast Food Nation, 85 Schor, Juliet, 87; Born to Buy, 80, 81 Schumpeter, Joseph, 133, 134, 137, 210 second-best, theory of, 135 self-fulfilling prophecies, 68 self-interested individuals, 12 selfishness, 17; as a virtue, 13; bounded, 23–4, 25 Sen, Amartya, 89, 201 shareholder value movement, 192 shareholders, versus managers, 114–15 Sharpe, Andrew, 211 Shiller, R. J., 148, 149, 243–5, 258, 262 short-run costs, 97, 102–4 Simon, Herbert, 249 Smith, Adam, 22, 86, 94, 180, 245, 257; The Wealth of Nations, 13, 15 smoking of tobacco, 163; quitting of, 22 social capital, 20 social cohesion, 20–1, 26 social context, importance of, 78 social exclusion, 201 social safety net, provision of, 14 Sonnenschein-Mantel-Debreu (SMD) Theorem, 72 speculation, destabilizing, 69–70 speculators, role of, 69 spiteful egalitarians, 207 spot transactions, 141, 144, 250 Sraffa, Piero, 65–6, 104–5, 106 Stalk, G., 190 state, role of, 18–19, 196 status: as non-pecuniary benefit, 185; importance of, 185–6 Stern, Nicholas, 154–5 Stigler, George, 138 Stiglitz, Joseph, 1, 55–6, 67, 106, 143, 145, 146, 193, 245–6, 253, 260–1, 262 strategic trade policy, 222 sub-prime mortgage crisis, 70, 252, 260, 262 subsidies, 223, 231 Summers, Larry, 146 supply curve, 47–8, 62, 64, 65, 66, 118–21, 122–3, 130; of labour, 175 surplus production, 63 see also consumer’s surplus Sweden, child health in, 216 systematic mistakes, 22–3 tariffs, 31, 43, 45, 222–3, 231; analysis of, 225; economics of, 219–24; seen as increasing employment, 223–4 taxation, 14, 196–218; and inefficiencies, 20; based on consumption spending, 158; costs of, 52–3, 196–7; in Denmark, 210–11; international comparison of, 197–201; predictions concerning incidence of, 61–2; sales taxes, 51–2 Taylor, Lance, 166 technological change, 133, 228 technology, 93 terms of trade, changes of, 223 testing of hypotheses, 37, 38 Thaler, Richard, 24, 69 thought experiments, 38–9, 90, 101 Thucydides, 234 Thurow, Lester, 183, 192 time, scarcity of, 91 tit-for-tat strategies, 129 304 Voitchovsky, Sarah, 211 voluntary simplicity, 91 ultimatum game, 24 unemployment, 43–4, 174, 225, 226, 236 see also minimum wage, effect on unemployment unfair trade practices, retaliation against, 223 Union for Radical Political Economics (URPE), 7 unions, 24, 190, 194, 240; and monopsony, 176–7; and wage differentials, 173; cited as cause of unemployment, 173 United Nations, Millennium Development Goals, 201 United Nations Children’s Fund (UNICEF), 82, 216; Baby Friendly Hospital Initiative, 83 United Nations Development Programme (UNDP), 202 United States of America (USA), trade deficit of, 44 US–Canada softwood lumber dispute, 237–8 utility, 9; maximization of, 12, 25, 74–6 Valentine, T., 33 Veblen, Thorstein, 109 wage compression, 184–5 wage differentials, caused by unions, 173 wage–turnover relationship, 189 wages, 58, 67, 177, 185, 187, 189–90; determination of, 171–2, 230; differentials of, 172; inequality of, 227 see also efficiency wage and minimum wage wants: constructed, 16; creation of, 87; equality of, 42; unlimited, 15–17, 243 Weeks, John, 205 welfare state, 210; arguments against, 208 well-being, 156–7, 158, 186, 209, 246; determination of, 6, 91; maximization of, 85; subjective, surveys of, 87–9 Wells, R., 46, 53, 243 Wilkinson, R., and M.

pages: 402 words: 126,835

The Job: The Future of Work in the Modern Era
by Ellen Ruppel Shell
Published 22 Oct 2018

“Business well run is an enormous instrument for human good, a major source of prosperity and freedom,” she told me. “But business leached of any sense of value or purpose, well…no one relishes the idea of coming home exhausted from the office, and explaining to one’s spouse, ‘I’m late because I had to spend more time maximizing shareholder value.’ That’s not a life that would make sense to many people.” To at least some degree, the mid-twentieth-century “Golden Age of Capitalism” was—as Adam Smith might put it—constrained by “common sense”: government, business, and labor somehow managed to work together for mutual interests and, perhaps incidentally, the common good.

…

companies have eliminated David Jackson, Dynamic Organisations: The Challenge of Change (Houndmills: Macmillan Business, 1997), 106–7; Danielle Douglas, “Companies Embrace Structure with Fewer Managers,” Washington Post, February 24, 2012, https://www.washingtonpost.com/business/capitalbusiness/companies-embrace-structure-with-fewer-managers/2012/02/23/gIQAZn6YYR_story.html?utm_term=.3886c92bb11a. This adjustment clearly correlates Adam Goldstein, “Revenge of the Managers: Labor Cost-Cutting and the Paradoxical Resurgence of Managerialism in the Shareholder Value Era, 1984 to 2001,” American Sociological Review 77, no. 2 (2012): 268–94, http://dx.doi.org/doi:10.1177/0003122412440093. The concept of “disruptive innovation” See, for example, the cartoon strip Dilbert, in which the dog Dogbert, working as a consultant, advises a client, “To survive, you must create disruptive innovations to redefine the market.”

pages: 404 words: 126,447

Collision Course: Carlos Ghosn and the Culture Wars That Upended an Auto Empire
by Hans Gremeil and William Sposato
Published 15 Dec 2021

It is also a focal point for much of the criticism of Japanese companies from foreign investors, who contend that a company’s purpose is to make as much money as possible, with the government responsible for all the societal issues. But this “global” viewpoint is itself in transition today, in many respects moving closer to traditional Japanese concepts. Where hedge funds and corporate raiders have for decades pushed the concept of shareholder value (as seen in ever-rising stock prices), new voices have now emerged. Even the World Economic Forum (WEF), the quintessential talking shop for the rich and powerful, clearly noticed the winds changing in 2020, using its fiftieth anniversary to launch a new Davos Manifesto. As it was described by WEF founder Klaus Schwab, “companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chains, and advocate for a competitive level playing field.”1 This is closer to the ethical underpinnings of 1,400-year-old Japanese companies than today’s hedge funds.

…

.… During the post-war period, the Japanese breathlessly pursued economic reconstruction and development and did not have time to reflect what values and virtues they truly needed to build a new life.7 In the world of business, this was reflected in the concept that a company should benefit its customers, suppliers, and the general public. Cross-shareholdings were a part of this balanced relationship. They provided a generally supportive set of owners who would not be especially interested in their own shareholder value for the simple reason that they were typically your business partners. Your higher profit could come at their cost through higher prices. It also guarded against any hostile corporate takeovers, which given Japan’s focus on cooperation, not confrontation, were mainly a threat from overseas. The cross-shareholding ratio of listed companies, which had fallen to 20 percent in 1949 just as MacArthur had wanted, started to rise again as old alliances were reborn.

pages: 159 words: 45,073

GDP: A Brief but Affectionate History
by Diane Coyle
Published 23 Feb 2014

The creation of toxic financial instruments that multiplied and focused risks. The self-delusions and inadequacies of regulatory bodies that grew too close to those people and businesses they were supposed to be regulating. Above all, the loss of perspective about the purpose of business, which is not at all the maximization of short-term profit or even shareholder value, but rather delivering goods and services to customers (in ways they might not even know they want), in a mutually beneficial transaction. Profit and share price increases are a side effect, not a goal.3 Finally, the tragic downfall, the nemesis. By the mid-2000s, despite the turmoil of the earlier Asian financial crisis and dot-com bust (in 2001), so-called Anglo-Saxon capitalism appeared triumphant.

pages: 503 words: 131,064

Liars and Outliers: How Security Holds Society Together
by Bruce Schneier
Published 14 Feb 2012

These differences may affect corporations' defection characteristics: They have a single strong self-interest: the profit motive. The case can be made that it's the only relevant interest a corporation has. A corporation is legally required to follow its charter, which for a non-profit corporation means maximizing shareholder value. Individuals have many more competing motivations. They try to hire people who will maximize their selfish interest. The people who run corporations, as well as the people promoted within them, tend to be willing to put the corporation's selfish interest (and sometimes their own selfish interest) ahead of any larger group interest.

…

In addition to allowing organizations to grow in size, and therefore power, and facilitating new types of organizational structures, information technology is also changing how organizations act. There have been many books and articles discussing how corporations today are putting short-term stock prices above all other business considerations, including company health and long-term shareholder value. I've read lots of explanations for this change. That executives' bonuses are based on short-term numbers. That stocks are used more for short-term “bets” than for long-term investments. That mutual funds and complex index options further remove investors from the companies they invest in. And that investors have access to more information faster—and can act on that information faster.

pages: 458 words: 135,206

CTOs at Work
by Scott Donaldson , Stanley Siegel and Gary Donaldson
Published 13 Jan 2012

Ferguson: So, anyway, managers came and managers went, and we were reorg'd again and again. I worked with the same technical guys, Tom Storey, Tim Holloway, Rob High, Jerry Cuomo, Eric Herness, Martin Nally for years. They were my brothers in arms. I would do anything for them and vice versa. S. Donaldson: So these folks made decisions to advance shareholder value for the whole corporation – they had that thought in mind? Ferguson: Yep. We were a team, and no matter how the company reorg'd, it was the same people. We'd be in different roles, but we were a team. We were the constant. And then the third thing for our success was communication—I am with customers all the time.

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Has it been put together with duct tape and rubber bands?” I'll crawl under the hood a little bit. If it has an odd smell to it, I'll bring our architects and our senior developers to dive in a little bit deeper. So it's the technology aspects of the M&A. It also comes down to financial feasibility, shareholder value, all of those other things, because then you consider your fiduciary responsibility, the company hat goes on. S. Donaldson: How much do you do in terms of patents? Tolnar: I'll need to split that one up between hardware and software. Inour hardware area where we have a number of patents for our transformer monitoring solution both filed and approved.

pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis
by Anatole Kaletsky
Published 22 Jun 2010

The media and Greenspan’s many detractors after the crisis were indeed shocked by this public admission of error by “the Master.” The real shock, however, was the repudiation by the world’s most celebrated market economist of the key tenet of modern financial ideology: the idea that corporate managements’ focus on shareholder value is the most reliable and efficient way of achieving economic progress. Following this repudiation, it is clear that the directors of any institution with a banking license and any possibility of ever requiring financial guarantees must accept a fiduciary duty of care to the government and the public.

…

For the thirty years following the Thatcher-Reagan revolutions, business leaders took it as axiomatic that virtually all regulation and government intervention was damaging to their interests and that companies should devote substantial resources to campaigning for a minimalist state. The closure of manufacturing industries was justified as a natural and unavoidable consequence of market economics. Ruthless industrial restructuring and the single-minded pursuit of shareholder value were not only presented as inevitable but also seen as desirable, or at least rational and efficient. What will happen now that these economic concepts of rationality and efficiency have been discredited? As the dust settles after the recession and financial crisis, a deep reconsideration of the relationships between corporate managements, shareholders, and governments will occur.

pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor
by John Kay
Published 24 May 2004

In the 1980s, corporations were urged to direct economic rents exclusively to shareholders. The threat of hostile takeover focused managers on the pursuit of "shareholder value." Imaginative financiers put together packages that made it possible to attack even the largest of companies. Michael Milken, who put together some extraordinary deals for shady figures in the United States, was jailed, and the firm for which he worked, Drexel Burnham Lambert, went into liquidation. 10 But the effect ofhis activities led to a continuing emphasis on shareholder value even if Milken himself was out of business. As this trend developed, executives in large corporations no longer compared themselves with those who had risen to the top of other professions or large organizations-top lawyers or doctors, civil servants, managers of nationalized industries.

pages: 418 words: 128,965

The Master Switch: The Rise and Fall of Information Empires
by Tim Wu
Published 2 Nov 2010

AT&T ran Bell Labs not just for its corporate good but for the greater good as well. This is not to be naïve about the corporate profit motive: Bell Labs contributed to AT&T’s bottom line far more than plastic wire insulation. Nevertheless, it’s hard to see how funding theoretical quantum physics research would be of any immediate benefit to shareholder value. More to the point, it is hard to imagine a phone company today hiring someone to be their quantum physicist, with no rules and no boss. For, in part, the privileges AT&T enjoyed as a government-sanctioned monopoly with government-set prices were understood as being offset by this contribution to basic scientific research, an activity with proportionately more direct government funding in most other countries.

…

Yet in the rebuilt industries something is missing, like a part overlooked, and this is the sense of civic responsibility. The old empires were suppressive and controlling in their own ways, yet each had some sense of public duty, informal or regulated, that they bore with their power. At their best, they were enlightened despots. But the new industries’ ethos held that profit and shareholder value were the principal duty of an information company. What reemerged was similar in body but different in its soul. The information empires created in the 1980s shared many of the worst aspects of both open and closed forms. The new giants had much of the power of the old, without the noblesse oblige.

pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

The example shows that Wall Street CEOs can have an incentive to accept risky bets that aren’t in the long-term interest of their firms. (In the long run, unlikely things happen). The high leverage that Wall Street firms employ only accentuates the problem. At a business such as Microsoft or Exxon Mobil, the term “enhancing shareholder value” really means something. Since these firms have very little debt, acting in the shareholders’ interest is equivalent to maximizing the value of the firm. But Wall Street banks employ enormous leverage. At the end of 2006, Lehman Brothers had $19.2 billion in shareholders’ equity and $484 billion in liabilities; Bear Stearns had $12.1 billion of equity and $338 billion in liabilities; Merrill Lynch had $39 billion in equity and $802 billion in liabilities.

…

At the end of 2006, Lehman Brothers had $19.2 billion in shareholders’ equity and $484 billion in liabilities; Bear Stearns had $12.1 billion of equity and $338 billion in liabilities; Merrill Lynch had $39 billion in equity and $802 billion in liabilities. In thinly capitalized businesses like these, the debt holders’ investments represent a great deal of the company’s value, whereas the shareholders’ equity is a mere sliver. Incentivizing a CEO to focus exclusively on shareholder value creates a potential conflict of interest. Finally, some economists are recognizing these problems. In a 2009 paper, Lucian Bebchuk and Holger Spamann, of Harvard Law School, pointed out that giving a Wall Street CEO a big package of restricted stock or stock options amounts to giving him a heavily levered and asymmetric bet on the value of the firm’s assets.

pages: 521 words: 136,802

Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy
by James B Stewart and Rachel Abrams
Published 14 Feb 2023

The following Tuesday they drove over the Hollywood Hills to CBS Studio Center, where Moonves joined them in the van for a visit lasting less than ten minutes. Sumner didn’t seem to know who Moonves was. Reports of the Paramount visit prompted a letter from Viacom’s lead director, Salerno, addressed to Sumner. “You and I have worked together for decades to create shareholder value and develop shareholder trust,” Salerno wrote. But “strangely, in the last few months, a host of new advisors and spokespeople say they work for you. They claim that strongly held views you have expressed for decades have, in the past few months, completely reversed. They say you no longer trust your friends, your advisors, or your board.

…

On February 1, both CBS and Viacom announced they had appointed special committees of independent directors to “evaluate a potential combination.” As before, Shari and her nonindependent board allies were excluded, though there was no doubt about what they wanted. National Amusements, the Redstone-owned controlling shareholder of both companies, issued a statement that a combination “has the potential to drive significant, long-term shareholder value.” A few days later Moonves and Shari showed their solidarity by sitting together in the CBS box at Super Bowl LII in Minneapolis, both cheering for Shari’s Patriots over the Philadelphia Eagles, who nonetheless won, 41–33. But the merger news was quickly overshadowed by renewed speculation about Moonves, as rumors intensified that the long-awaited New Yorker story was about to drop.

pages: 181 words: 50,196

The Rich and the Rest of Us
by Tavis Smiley
Published 15 Feb 2012

THE POOR NEED NOT APPLY “Pain and sorrow and misery have a right to our assistance: compassion puts us in mind of the debt, and that we owe it to ourselves as well as to the distressed.” —Joseph Butler Just as technology has made it easier for Americans to disconnect from one another, it has also proved the culprit responsible for the disconnection between employers and employees. “American business is about maximizing shareholder value,” said Allen Sinai, chief global economist at the research firm Decision Economics. “You basically don’t want workers. You hire less, and you try to find capital equipment to replace them.”80 With profits as their only motivator, companies have increasingly cut workforces by exporting blue- and white-collar jobs to low-cost countries overseas.

pages: 172 words: 50,777

The Nowhere Office: Reinventing Work and the Workplace of the Future
by Julia Hobsbawm
Published 11 Apr 2022

‘More on “Lying Flat”’, Modern Chinese Literature and Culture Resource Center, 3 July 2021, https://u.osu.edu/mclc/2021/07/03/more-on-lying-flat/ 9. Josh Cohen, Not Working: Why We Have to Stop (Granta, 2018) 10. Clay Skipper, ‘Our Collective Fixation on Productivity is Older Than You Think’, GQ, 1 February 2021, https://www.gq.com/story/james-suzman-work-interview 11. David Gelles, and David Yaffe-Bellany, ‘Shareholder Value is No Longer Everything, Top C.E.O.s say’, New York Times, 19 August 2019, https://www.nytimes.com/2019/08/19/business/business-roundtable-ceos-corporations.html 12. British Academy, ‘Future of the Corporation’, https://www.thebritishacademy.ac.uk/programmes/future-of-the-corporation/ 13. https://corporate.walmart.com/global-responsibility 14.

pages: 168 words: 49,067

Becoming Data Literate: Building a great business, culture and leadership through data and analytics
by David Reed
Published 31 Aug 2021

Unless the organisation is making incremental steps up the maturity curve, it may start to believe that data itself is at fault as a practice, rather than other process or cultural issues. At the same time, data leaders need to be aware of another facet which is outside of their control – shareholder value. Although data is constantly seeking to draw a straight line between its activities and the company P&L (see Chapter 9), two of the biggest pressures on the C-suite are share price and investor sentiment. When a CEO does get replaced, it usually heralds considerable disruption and reorganisation, not least because the incoming CEO will want to put their stamp on the business (and often as not flush out anything they consider not to have worked or to be tainted by association with their predecessor).

The Art of Profitability
by Adrian Slywotzky
Published 31 Aug 2002

Slywotzky holds degrees from Harvard College, Harvard Law School, and Harvard Business School. 157 THE ART OF PROFITABILITY About Mercer Management Consulting As one of the world’s premier corporate strategy firms, Mercer Management Consulting helps leading enterprises achieve sustained shareholder value growth through the development and implementation of innovative business designs. Mercer’s proprietary business design techniques, combined with its specialized industry knowledge and global reach, enable companies to anticipate changes in customer priorities and the competitive environment, and then design their businesses to seize opportunities created by those changes.

The Corporation: The Pathological Pursuit of Profit and Power
by Joel Bakan
Published 1 Jan 2003

Scandals on Wall Street are "merely the tip of the black iceberg," beneath which lies "a culture that is increasingly defined by selfishness" and that threatens to destroy business, "the very thing we cherish." CEOs, they say, "have learned to repeat almost mindlessly," like a mantra, that "corporations exist to maximize shareholder value"; they are trained to believe selfinterest is "the first law of business." And the notion that "a rising tide lifts all boats" is believed by businesspeople to "rationalize what otherwise looks like self-serving behavior," despite its profound implausibility (the facts belie the concept, according to the professors, who point out that "at the height of a decade-long economic boom, one in six American children was officially poor and 26% of the workforce was subsisting on poverty-level wages . . .

pages: 218 words: 44,364

The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations
by Ori Brafman and Rod A. Beckstrom
Published 4 Oct 2006

He's in charge, and he occupies the top of the hierarchy. A catalyst interacts with people as a peer. He comes across as your friend. Because CEOs are at the top of the pyramid, they lead by command-and-control. Catalysts, on the other hand, depend on trust. CEOs must be rational; their job is to create shareholder value. Catalysts depend on emotional intelligence; their job is to create personal relationships. CEOs are powerful and directive; they're at the helm. Catalysts are inspirational and collaborative; they talk about ideology and urge people to work together to make the ideology a reality. Having power puts CEOs in the limelight.

pages: 178 words: 52,637

Quality Investing: Owning the Best Companies for the Long Term
by Torkell T. Eide , Lawrence A. Cunningham and Patrick Hargreaves
Published 5 Jan 2016

Its rationale for growth through acquisitions persists: although it is twice the size of the industry’s second-largest manufacturer, ASSA ABLOY still only commands just over 10% share of the global market. Despite the potential benefits, acquisitions are risky, and none of the foregoing rationales is foolproof. There is considerable evidence to suggest that acquisitions are more likely to impair shareholder value than increase it. Even good businesses – including some we are invested in – have stumbled. Managers do not always provide investors with sufficient information to evaluate proposed acquisitions completely or objectively. They invariably provide projections that look compelling and business rationales that seem logical.

pages: 196 words: 54,339

Team Human
by Douglas Rushkoff
Published 22 Jan 2019

They’re just sitting on piles of unused money, and taking so much cash out of the system that central banks are forced to print more. This new money gets invested in banks that lend it to corporations, starting the cycle all over again. Digital businesses are just software that converts real assets into abstract forms of shareholder value. Venture capitalists remain hopeful that they will invest in the next unicorn with a “hockey stick”–shaped growth trajectory, and then get out before the thing crashes. These businesses can’t sustain themselves, because eventually the growth curve must flatten out. The myth on which the techno-enthusiasts hang their hopes is that new innovations will continue to create new markets and more growth.

pages: 525 words: 142,027

CIOs at Work
by Ed Yourdon
Published 19 Jul 2011

I seldom had many challenges in working with my colleagues to get the job done. And I think part of it is, if you look at it from a customer view, fundamentally, and you understand the end customer, then they’re all partners, they’re all partnered together. I’m incentivized as much as they are to deliver business results and shareholder value by driving customer growth. So if I’m addressing the same problem they’re trying to address, we’re on the same side. Now, we may have different views of how we think we may address it, but we’re fundamentally trying to solve the same issue, and it often is the ground of convergence, as a result, because you’re comparing notes on how best to solve it and often find, “Yes, they’ve got great ideas.

…

When we’re in roles like the ones I’ve held and I’ve had the luxury of holding, they’re always closely associated with the front end, customer end, and the solutioning of the services. So every role I’ve had has been technology-intense with the customer at the core. Delivering product platform and solutions to enable enterprise value, shareholder value and customer experience. Effectively, I’ve been on both sides of the fence as being a pure “CIO” and running technology and product marketing for a B2B and B2C. So, increasingly, I think, roles will fuse and will evolve. I think the people who want to grow and evolve will continue to have fascinating roles, especially when you come at it from a solution view and you get technology, and you get the customer.

pages: 423 words: 149,033

The fortune at the bottom of the pyramid
by C. K. Prahalad
Published 15 Jan 2005

The Social Imperative The social agenda is an integral part of ITC’s philosophy. ITC is widely recognized as dedicated to the cause of nation-building. Chairman Y. C. Deveshwar noted, “ITC believes its aspiration to create enduring value for the nation provides the force to sustain growing shareholder value.” This vibrant view of social conscience allowed ITC to recognize the unique opportunity of blending shareholder value creation with social development. The social impact of the e-Choupals as envisioned by ITC ranges from the 332 The Fortune at the Bottom of the Pyramid short-term provision of Internet access to the long-term development of rural India as a competitive supplier (and buyer) of a range of goods and services to and from the global economy.

pages: 518 words: 147,036

The Fissured Workplace
by David Weil
Published 17 Feb 2014

Given the size of these investments, they are an area of significant tension and litigation. But as I explore in Chapter 6, the franchisor retains significant authority to terminate franchisees.68 Coming Full Circle: Capital Market Responses to Shedding Employment Financial markets increasingly drive companies under their exacting scrutiny to focus on shareholder value. This leads them to shed business units and products no longer viewed as core and to prune away remaining activities even in the core that might be viewed as peripheral. Several recent studies provide evidence underscoring the connection between capital market pressure and employment restructuring.

…

In a famous essay at the time, Milton Friedman (1970) raised a very different concern related to the same detachment between ownership and management. He argued that the growing discussion among business executives about social responsibility was naïve at best and counterproductive at worst, since the prime responsibility for management was to maximize shareholder value. “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

pages: 543 words: 143,084

Pandora's Box: How Guts, Guile, and Greed Upended TV
by Peter Biskind
Published 6 Nov 2023

HBO, in other words, was at the mercy of the Street. Friedman’s gospel discouraged the kind of long-term thinking that might have encouraged HBO to buy Netflix when it had the opportunity. Or, as Fuchs puts it, more colorfully, Bewkes “would say that he wanted to produce shareholder value. If I hear one more time that shareholder value means more than anything else, I’ll go to Chicago and piss on Milton Friedman’s grave because that fucking sentence has destroyed American capitalism.”75 Still, it wasn’t all Friedman. There was more than a little arrogance involved. Says one agent, it was, “We’re HBO.

pages: 199 words: 56,243

Trillion Dollar Coach: The Leadership Playbook of Silicon Valley's Bill Campbell
by Eric Schmidt , Jonathan Rosenberg and Alan Eagle
Published 15 Apr 2019

After many hours talking with the founders, he became convinced that theirs was the best approach. He believed it would keep Google on track not just in its current businesses but in its broader mission of organizing the world’s information, and it would actually lead to the creation of greater shareholder value than the traditional structure. He made this case to the board, but there was still a lot of open discussion. At the same time, some board members had been mulling over the idea of bringing in a new chairman of the board, someone who was more independent of the company, and the discussion on the dual stock classes pushed them even further in that direction.

pages: 205 words: 58,054

Private Government: How Employers Rule Our Lives (And Why We Don't Talk About It)
by Elizabeth S. Anderson
Published 22 May 2017

When workers have a say in governance, employment tends to be more stable and wages tend to be more volatile.9 In other words, the real problem with bosses is that they are too willing to give up “control” over their workers. Anderson mentions the German codetermination model, whereby workers sit on the boards of corporations. The best study I know indicates that this organizational form costs about 26 percent of shareholder value because of lower productivity,10 and furthermore a lot of that burden is born by consumers, who of course are mostly workers in another guise. And that result is for Germany, the country where this organizational model probably has been most successful. Furthermore, the codetermination model works best for midlevel manufacturing firms—which are prevalent in Germany—but does not generalize as easily to the service sector, where most workers may have less of a stake in the long-run interests of the firm.

pages: 1,445 words: 469,426

The Prize: The Epic Quest for Oil, Money & Power
by Daniel Yergin
Published 23 Dec 2008

In such cases, the obvious implication was that a new management might be able to increase the price of the stock and so enhance that noble cause, "shareholders' value," in a way that the old management had failed to do. There was a further twist: It could cost two or three times more to add a barrel of oil by exploration than by buying the assets of an existing operation. To the management of companies, the obvious implication was that it was cheaper to "explore for oil on the floor of the New York Stock Exchange"—that is, buy undervalued companies—than to explore under the topsoil of West Texas or in the seabed of the Gulf of Mexico. Here, again, shareholders' value was a driving force. Many companies had taken the huge cash flows that poured out of the two oil shocks and put them right back into exploration in the United States, seeking secure alternatives to OPEC.

…

Boone Pickens became a celebrity of sorts, expert at turning aside reporters with a dry laugh when they solemnly asked if he were the "real life" J. R. Ewing of the Dallas television series. In the financial community, Pickens was widely applauded among investors; he made things happen, he enhanced shareholders' value. In the oil industry, however, while he was admired by some, he was loathed by others. Placing himself strategically at the junction of the oil industry and Wall Street, he said that he was pushing the oil industry back to basics, fighting its self-indulgent waste, saving it from its own excesses and illusions and arrogance, and serving the often-ignored interests of the heretofore-disenfranchised shareholders.

…

It was as though, instead of risking its future in the town in which it lived, it decided to go to Las Vegas. It missed everywhere." That, of course, could have happened to any of the major oil companies in the feverish climate that followed the oil shocks of the 1970s. But Gulf paid the ultimate price.[10] Shareholders' Value Pickens was not yet through. In rapid fire, he made bids for both Phillips, in Bartlesville, Oklahoma, and Unocal, in Los Angeles. On Phillips, he was trailed by an aggressive Wall Street financier, Carl Icahn, who had already bagged Trans World Airlines. Both companies, however, successfully fought off the takeover attempts through the courts and by assuming a great deal of debt, which enabled them to buy back stock at a much higher price than had been the case before the attacks, thus increasing the payout to shareholders.

The Orbital Perspective: Lessons in Seeing the Big Picture From a Journey of 71 Million Miles
by Astronaut Ron Garan and Muhammad Yunus
Published 2 Feb 2015

In this view, directing all of your giving to a charity, where a significant portion of the money might go to overhead, may make less sense than investing some portion in a social business that operates like any other business, but with a primary and overarching goal to create some type of social and/or environmental good rather than to maximize profits, return on investment, or shareholder value. Now a much higher percentage of your money (potentially one hundred percent, if business operations are able to cover overhead) is going to create the intended good. Instead of creating a one-time, partial good, you’re creating long-term, sustainable good. And if all goes well, the money invested will eventually be returned to you to do with as you wish, including reinvesting in another social business helping to solve another problem.

How to Be Black
by Baratunde Thurston
Published 31 Jan 2012

Part B is about defending the company against charges of racism or lack of diversity, and your membership on the company’s diversity committee is essential to fulfilling this job requirement. The primary functions of the diversity committee are to establish meetings, generate reports, and use the word “diversity.” A sample description might look like this: Here at Optimus Research Group, we believe in three things: maximizing shareholder value, providing an exciting environment for professional development, and diversity. We heart diversity. Diversity is a core value and has been since our founding. The diversity committee embraces a diverse definition of diversity and seeks to provide programs and other opportunities that encourage knowledge of and respect for diversity.

Global Financial Crisis
by Noah Berlatsky
Published 19 Feb 2010

If banks are to return to “normal” commercial operation under private ownership, the issue arises of how they should be regulated. The Cruickshank report on banking, commissioned by Gordon Brown a decade ago, posed the central question: why should banks be allowed to pursue the maximisation of shareholder value—and management bonuses— when they are underwritten by the taxpayer? This question has never been answered properly. Banks should either surrender their protection and compete like other ﬁrms, or be protected and have their proﬁt regulated like utilities. In the wake of a banking crisis, the logic is even starker.

pages: 217 words: 63,287

The Participation Revolution: How to Ride the Waves of Change in a Terrifyingly Turbulent World
by Neil Gibb
Published 15 Feb 2018

What the public experienced, what seeped into the collective unconscious over time, was tech company after tech company being led by a desire to make something useful and good: Google’s drive to make information available to all, Wikipedia’s not-for-profit goal of engaging the whole world in sharing knowledge, Facebook connecting people and communities, even Angry Birds out to save you from the tedium of a boring teacher or bus ride home. It was not that these companies were simply out to do good – Silicon Valley is in many ways capitalism at its most raw – but that they were being led by their social mission to make and do something useful and good, rather than the single-minded pursuit of shareholder value and profit. In October 2013, Merck & Co announced it would be cutting 8,500 jobs and $1.5 billion off its costs. At the same time over in Silicon Valley, high-tech start-ups and giants like Google, Facebook, and Apple were drawing in talent and investment in the same way that Merck had when he opened his labs in 1929.

100 Baggers: Stocks That Return 100-To-1 and How to Find Them
by Christopher W Mayer
Published 21 May 2018

On the research front, here are a few relevant studies: • Joel Shulman and Erik Noyes (2012) looked at the historical stock-price performance of companies managed by the world’s billionaires. They found these companies outperformed the index by 700 basis points (or 7 percent annually). • Ruediger Fahlenbrach (2009) looked at founder-led CEOs and found they invested more in research and development than other CEOs and focused on building shareholder value rather than on making value-destroying acquisitions. • Henry McVey and Jason Draho (2005) looked at companies controlled by families and found they avoided quarterly-earnings guidance. Instead, they focused on long-term value creation and outperformed their peers. There is much more, but you get the idea.

Presentation Zen
by Garr Reynolds
Published 15 Jan 2012

Kennedy—has every element of SUCCESs, and it motivated a nation toward a specific goal that changed the world. JFK, or at least his speechwriters, knew that abstractions are not memorable, nor do they motivate. Yet how many speeches by CEOs and other leaders contain phrases such as “maximize shareholder value yada, yada, yada?” Here’s a quick summary of the six principles from Made to Stick that you should keep in mind when crystallizing your ideas and crafting your message for speeches, presentations, or any other form of communication. • Simplicity. If everything is important, then nothing is important.

pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century
by Tom Bower
Published 1 Jan 2009

Over the previous seven years, Mobil had fired 33 percent of its workforce and sold billions of dollars’ worth of assets. By mid-1998 the downturn had become longer and more entrenched than Noto had anticipated. “Now we’re getting down to the muscle and not fat,” he said. Despite following John Browne’s example of cutting costs and generating shareholder value, the reasons for a merger had not changed. “Ours is a great business,” Noto conceded, “so long as you’re number one or two… The status quo just didn’t work.” Mobil, he decided, was too small, and while the oil price was low, the company, according to an assistant, was “sliding south.” Not long before, Noto had damned those who left the company as “traitors.”

…

Browne was untroubled. The public announcement of the bid on April 4 raised Browne’s profile into the stratosphere. He accepted the invitation to stand in the spotlight. By any measure, he was leading a global juggernaut ranking alongside Silicon Valley’s giants. “Its emphasis on growth and shareholder value,” commented Philip Verleger, “has paid enormous benefits to the BP shareholders.” BP’s flexibility and lack of bureaucracy, added Verleger, outshone its competitors. Unmentioned in Browne’s public pronouncements was ExxonMobil, which was still substantially ahead of BP at $243 billion. Hailing the creation of “the largest oil output of any non-state company,” Browne spoke about “a compelling strategic and geographic fit of quality assets” and “the immense potential it offers for future growth.

pages: 693 words: 169,849

The Aristocracy of Talent: How Meritocracy Made the Modern World
by Adrian Wooldridge
Published 2 Jun 2021

Business schools hatched professors who were notable not just for their knowledge of particular businesses but for their ability to produce intellectual models: strategists such as Michael Porter and finance theorists such as Michael Jensen, who tried to bring the rigour of economics to the study of business. They also mass-produced MBAs who had little time for the post-war business establishment, with its clubby culture and three-Martini lunches, and who wanted instead to force American business to sit up and shape up – by pursuing shareholder value if they were disciples of Jensen or by examining the operation of the ‘five forces’ if they were Porterites. The same cult of ‘smarts’ gripped management consultancies. Bruce Henderson, the founder of the Boston Consulting Group (BCG), believed that the company’s only chance of challenging McKinsey lay in out-thinking it rather than out-networking it.

…

George Romney, who didn’t graduate from university, worked in the manufacturing sector for twenty-three years, running the American Motors Corporation for eight of them and becoming ‘a folk hero of the American auto industry’. Mitt Romney graduated in the top 5 per cent in his class at Harvard Business School before joining three IQ-obsessed consultancies, first BCG in 1975, then Bain and Company two years later and, finally, as CEO, Bain Capital, which married strategic consultancy with the shareholder-value revolution by investing money in the firms it advised. Under Romney’s direction Bain Capital ‘re-engineered’ more than 150 companies in a bewildering variety of industries and made the future Republican presidential candidate and US senator an estimated fortune of $200 million.48 The new meritocrats thus transformed everything that they touched in post-war society: schools became avenues of mobility, universities became research institutions-cum-professional training schools; business became more preoccupied with the brainpower of its employees.

pages: 222 words: 70,559

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis
by Stephen Leeb and Donna Leeb
Published 12 Feb 2004

Moreover, there is no long-term scarcity of drilling rigs or drilling services. And even as oil and gas producers, by dint of maximizing their profits, end up with more money to spend, there is no guarantee they will spend it on drilling. Rather, they are equally likely to use it to raise dividends, repurchase shares, or undertake some other means of increasing shareholder value. Still, we wouldn’t completely rule out investing in the service companies. As speculations leveraged to rises in oil prices, they could merit a small place in the energy portion of many portfolios. Altogether there are less than a dozen major players in the oil services arena. The clear standout in the field is Schlumberger, the most profitable and dominant diversified oil service company in the world.

pages: 261 words: 64,977

Pity the Billionaire: The Unexpected Resurgence of the American Right
by Thomas Frank
Published 16 Aug 2011

The list of heavy economic thinkers who denied that there was a bubble in the real-estate market, for example, is long and shiny with glittering names, every prestigious one of them convinced that prices were being driven upward by fundamentals, as theory says such prices almost always are.11 More disastrous by far, though, was the economists’ push to roll back regulations against fraud in financial markets, on the smug belief that financiers were so keenly rational and so zealous to protect shareholder value that they simply would not allow fraud to happen. That fraud, in fact, happened in all sorts of catastrophic ways and at many different levels made no difference; theory canceled it all out.12 Abstract reasoning like this is not solely the province of advanced thinkers; another place where you find it is, of course, the Glenn Beck empire.

pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
by Richard A. Posner
Published 30 Apr 2009

And remember that other factors contributed to the financial crisis that brought on the depression besides low interest rates: aggressive marketing of mortgages, a widespread appetite for risk, a highly competitive, largely deregulated finance industry, and debt securitization. Businessmen and individuals would, it is true, have been more cautious had there been no prospect of government bailouts (that is the moralhazard issue). Although bailouts do not save all firms, all careers, or all shareholder values, firms that are saved by a bailout retain employees who would have lost their jobs had the firm not been saved, and equity values are preserved that would disappear in bankruptcy. Still, a bailout is a traumatic experience. Even holders of secure debt are often badly hurt, because the value of their collateral falls.

pages: 237 words: 67,154

Ours to Hack and to Own: The Rise of Platform Cooperativism, a New Vision for the Future of Work and a Fairer Internet
by Trebor Scholz and Nathan Schneider
Published 14 Aug 2017

There are two basic principles of purpose ownership: (1) voting rights are decoupled from dividend rights and are held by those who lead the company or are actively involved; (2) profits are a means to an end and not an end in themselves. In practice this means that dividend rights are held by investors without voting rights. Dividends are capped and profits are reinvested or used to pay back investors. We call this the self-determination of the company. Because of this ownership structure, decisions are not driven by shareholder value maximization, and the company is not an object of speculation. Purpose ownership—which can take different legal forms, including cooperatives—is a clear signal to employees, investors, clients, and other potential collaborators that their contribution benefits the purpose of the company rather than the private wealth of equity holders.

pages: 247 words: 63,208

The Open Organization: Igniting Passion and Performance
by Jim Whitehurst
Published 1 Jun 2015

It Starts with a Purpose Over the past few years, many authors have written about “intrinsic motivation”—things inside a person that motivate him or her, as opposed to external incentives like money or power. In their best-selling book, Conscious Capitalism, Whole Foods CEO John Mackey and Babson College professor Raj Sisodia write: Business has a much broader positive impact on the world when it is based on a higher purpose that goes beyond only generating profits and creating shareholder value. Purpose is the reason a company exists. A compelling sense of higher purpose creates an extraordinary degree of engagement among all stakeholders and catalyzes creativity, innovation, and organizational commitment . . . Higher purpose and shared core values unify the enterprise and elevate it to higher degrees of motivation, performance, and ethical commitment at the same time.1 Or, as the authors of the excellent book Collective Genius so aptly put it: “Purpose is often misunderstood.

pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

As we have demonstrated in this book, the facts say otherwise. When a financial crisis erupts, lawmakers and regulators must address problems in the banking system. They must work to prevent runs and preserve liquidity. But policy makers have gone much further, behaving as if the preservation of bank creditor and shareholder value is the only policy goal. The bank-lending view has become so powerful that efforts to help home owners are immediately seen in an unfavorable light. This is unacceptable. The dramatic loss in wealth of indebted home owners is the key driver of severe recessions. Saving the banks won’t save the economy.

pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton
by Colin Read
Published 16 Jul 2012

Collateralized debt obligations – investment-grade securities backed by a package of loans, mortgages, bonds, or other debt obligations. 188 Glossary 189 Consumption CAPM – an extension of the CAPM that includes future consumption preferences. Corporate finance – the study of financial decisions made by corporations to maximize shareholder value. Correlation – the statistical relationship between two variables, typically measured by demonstrating that the movement of one variable is associated with movement of the other. Covariance – a measure of the degree to which returns on two risky assets are correlated in their movement. Cowles Commission – a research institute founded by Alfred Cowles to stimulate new theories in the decision sciences that can help explain financial markets.

Smart Cities, Digital Nations
by Caspar Herzberg
Published 13 Apr 2017

Under these conditions, the companies that become and remain vital forces in urban technology development will be those that achieve not just reliable connectivity, data storage, analysis, and services; they will also be the best partners for the most innovative leaders. The smartest tech companies will be those that realize shareholder value is a metric of limited value if it is not mirrored by tangible results for urban clients. Barber does make note of Cisco’s collaboration with Barcelona and the resultant City Protocol initiative, but questions “whether putting best practices and innovative policy initiatives on a web feed that goes directly to member cities actually alters the urban landscape.”

pages: 246 words: 68,392

Gigged: The End of the Job and the Future of Work
by Sarah Kessler
Published 11 Jun 2018

In German-style “codetermination,” for instance, workers take seats on company boards and form “work councils” that address day-to-day issues. While many once argued that Germany wouldn’t be able to sustain this system in a globalized world, a report from the Brookings Institute recently pointed out that, in fact, codetermination has shielded Germany from the detrimental impacts of short-term fixes to create shareholder value.3 As Susan Holmberg, the report’s author, explained in a Quartz op-ed: Executive stock options, which incentivize irresponsible risk taking [and] fraud … are viewed by the German public and its workers as highly suspect, and they are issued at a much lower rate than in the United States. And while German executive pay has risen, it is nowhere near the levels of America’s juiced up executive pay, which has become a major driver of our inequality crisis.

pages: 241 words: 70,307

Leadership by Algorithm: Who Leads and Who Follows in the AI Era?
by David de Cremer
Published 25 May 2020

With this statement, companies have now officially left behind the ideas developed by the famous economist Milton Friedman, who argued in his article, ‘The social responsibility of business is to increase its profits,’ that the sole purpose of an organization is to maximize profit for the shareholder.²⁰³ In a way, Friedman is saying that promoting shareholder value is the ethical thing to do! Today, we know better. Confronted with the possibility of becoming a more tech-driven and thus cool society, we increasingly feel that we need more, rather than less, humanity. In addition to rational calculations and optimal functions derived from further data analysis, we are feeling the need to emphasize the importance of sound and ethical judgments that satisfy the concerns and needs of all those being implicated by the decision taken.

Spite: The Upside of Your Dark Side
by Simon McCarthy-Jones
Published 12 Apr 2021

Spite is automatic and effortless. Admittedly, such findings come from an artificial laboratory game. What about spite in the real world? When we look around, do we see anything other than minor acts of personal spite? How far can spite go? Do we see spite in the business world, where maximizing shareholder value is required? Does spite manifest on the political scene? When push comes to shove, are people really prepared to be spiteful, or does self-interest win out? Let us go in search of spite. We will start looking where evolution suggests conflict should be most evident: in matters of sex and reproduction.30 IN 2013 ALAN MARKOVITZ BOUGHT a beautiful lakeside house next door to his ex-wife.

pages: 242 words: 67,233

McMindfulness: How Mindfulness Became the New Capitalist Spirituality
by Ronald Purser
Published 8 Jul 2019

If Ford moved all US manufacturing offshore, that would be the end of the United Auto Workers union, plunging Detroit, Michigan further into the black hole of poverty. And social dimensions of suffering are not on the radar of corporate mindfulness. At Ford, like most other companies, managers just see it as a way of reducing stress and improving focus, all in the service of profit-making and increasing shareholder value. And if that requires a massive loss of jobs, then so be it. “It’s all about the consumer experience,” Higbie elaborated. “In fact, we see what we are doing as part of the consumer experience movement.” I felt glad to have skipped the eating part of lunch. I might have had indigestion. “We see mindfulness as helping Ford create a more empathic organization,” he insisted.

pages: 602 words: 177,874

Thank You for Being Late: An Optimist's Guide to Thriving in the Age of Accelerations
by Thomas L. Friedman
Published 22 Nov 2016

We fill another thirty thousand jobs through rotations and promotions. It costs about two thousand dollars just to hire someone, so our preference always is to use our internal employees. It is more cost-effective and will generate more employee engagement and productivity, which means employees will go the extra mile so customers will be served better and shareholder value will increase. The companies with the most highly engaged workforces earn three times those with less. But this has meant placing a lot more lifelong learning demands on a lot more employees. Most employees “embrace what we’re trying to do,” said Blase. “They say, ‘Just give me the tools, point me in the right direction, help me make [the transition] seamless, and make it cost-effective and make it mobile and make it Web based, so I can do it on my own time, and make it flexible and make the training in a format that I can learn quickly and effectively.’”

…

And if you want to take a general STEM [science, technology, engineering, math] course that is not part of our program, we will pay for it, too. If you want to learn, we’re all in, because, again, it leads to more engaged employees; that equals better customer service, more loyal customers, and more shareholder value. We did not have anything like this when I was growing up in the company. These supports are for jobs paying sixty thousand to ninety thousand dollars a year. The company registers all certificates and degrees earned by employees in their company profiles and can easily search them through big data tools.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

For a time ultra-low interest rates supported the construction industry and speculation in real estate. When the Federal Reserve raised the federal funds rate between 2004 and 2006, this source of activity, too, was fatally damaged. Analysts are free to apportion the blame between a dearth of investment opportunities (‘secular stagnation), the quest for shortterm shareholder value, and favourable tax treatment of stock-options.17 Ironically, Chinese investors, who would have been willing to invest in the American economy long-term, were debarred from doing so on security grounds. 340 g l ob a l i m b a l a n c e s It should be obvious that Chinese ‘over-saving’ and American ‘under-investment’ are the same thing looked at from different theoretical perspectives; which ‘caused’ the other is impossible to determine empirically.

…

Lavelle, A. (2016 (2008)), The Death of Social Democracy: Political Consequences in the 21st Century. Abingdon: Routledge. Lavoie, M. (2018), Rethinking macroeconomic theory before the next crisis. Review of Keynesian Economics, 6 (1), pp. 1–21. Lawson, N. (1992), The View from No. 11: Memoirs of a Tory Radical. London: Bantam Press. Lazonick, W. (2015), How maximising shareholder value stops innovation. In: Mariana Mazzucato and Caetano C. R. Penna (eds.), Mission-Oriented Finance for Innovation: New Ideas for Investment-Led Growth. London: Rowman & Littlefield, pp. 31–8. Lee, A. J. (1970), The Social and Economic Thought of J. A. Hobson. PhD thesis, University of London. Leijonhufvud, A. (1979), The Wicksell Connection: Variations on a Theme.

pages: 242 words: 245

The New Ruthless Economy: Work & Power in the Digital Age
by Simon Head
Published 14 Aug 2003

For-profit MCOs overwhelmingly dominate the managed care industry, and these MCOs make money when their average spending per enrolled patient falls below the average value of the premiums they receive from employers. The less an MCO spends on its patients, the greater its profits, and the greater the shareholder value it contributes to its investors. The industry uses the phrase "medical losses" to describe the payments it has to make on behalf of its sick customers, and this choice of words reveals much about how the industry regards such payments. An MCO's "medical loss ratio" calculates the payments to MCO customers as a percentage of total revenues, and is an amount that MCO managers try to keep as low as possible.

pages: 274 words: 75,846

The Filter Bubble: What the Internet Is Hiding From You
by Eli Pariser
Published 11 May 2011

It may be that this is too much power to entrust to any small, homogeneous group of individuals. Media moguls who get their start with a fierce commitment to the truth become the confidants of presidents and lose their edge; businesses begun as social ventures become preoccupied with delivering shareholder value. In any case, one consequence of the current system is that we can end up placing a great deal of power in the hands of people who can have some pretty far-out, not entirely well-developed political ideas. Take Peter Thiel, one of Zuckerberg’s early investors and mentors. Thiel has penthouse apartments in San Francisco and New York and a silver gullwing McLaren, the fastest car in the world.

pages: 302 words: 73,581

Platform Scale: How an Emerging Business Model Helps Startups Build Large Empires With Minimum Investment
by Sangeet Paul Choudary
Published 14 Sep 2015

Greater value creation attracts greater value consumption, and vice versa. The network effect creates positive feedback that enables systems to scale faster as they grow. These concepts are explored in detail in subsequent chapters in this section. DATA IS THE NEW DOLLAR In the quest to maximize shareholder value, organizations have traditionally been optimized to absorb revenue. Sales professionals are measured and incentivized based on the revenue they help the organization absorb. In the quest to transform into platforms, organizations must shift from a culture of dollar absorption to a culture of data absorption.

pages: 238 words: 73,121

Does Capitalism Have a Future?
by Immanuel Wallerstein , Randall Collins , Michael Mann , Georgi Derluguian , Craig Calhoun , Stephen Hoye and Audible Studios
Published 15 Nov 2013

The third main cause was that this occurred after a demolition of financial regulation; and the fourth was grossly widening inequality in the United States. Both of these last two were inspired by the conjunction of neoliberal ideology and bankers’ and top managers’ power within the American political system. This can be partly attributed to an American shift from manufacturing to financial services which helped make short-term “shareholder value” the main corporate goal. Similar causes operated in the United Kingdom, for finance capital and neoliberalism were dominant in both countries. These causes were not so pronounced in most other countries, though the German phobia concerning inflation (caused by the historical myth that inflation had caused the rise of Hitler) was compatible with the policies urged by neoliberals, and German economic power within Europe transmitted this fiscal conservatism across the continent.

pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy
by Kevin Mellyn
Published 18 Jun 2012

Of course, no politician has either, but that is irrelevant. The legitimacy of banking is what is at issue. So, what was wrong with the old banking model that needs to be confessed to as a blunder? The moment when banking or ﬁnance as a whole lost legitimacy was when the object of management became maximizing shareholder value as crudely measured by stock price. Since stock price is closely linked to return on equity—how much money a company earns on invested capital—this is an invitation to minimize capital and manipulate earnings through ﬁnancial engineering. Leverage—that is, working the business with borrowed money—was always considered a grave fault in would-be borrowers by an older generation of bankers.

pages: 209 words: 80,086

The Global Auction: The Broken Promises of Education, Jobs, and Incomes
by Phillip Brown , Hugh Lauder and David Ashton
Published 3 Nov 2010

Writing for CFO Magazine, Craig Schneider observed how chief ﬁnancial ofﬁces were behind attempts to measure the value added of the workforce because established HR measures, such as head count, turnover, or the cost of compensation and beneﬁts, “no longer cut it in this new world of accountability. They don’t go far enough to create shareholder value and align people decisions with corporate objectives.”38 The implications for employees were highlighted in our discussions with a senior manager working for an international bank in India. The bank had developed “staff league tables” to measure both hard performance, such as meeting sales targets, how many times they had visited customers, and so on, and soft performance, such as relationship management or customer satisfaction.

pages: 273 words: 76,786

Explore Everything
by Bradley Garrett
Published 7 Oct 2013

Capital investment is the catalyst both for sensibly sterile spaces of economic production and for spatial fluidity (some would say forced mobility), as well as leftover, forgotten and (often unintentionally) disused spaces. Both types of sites are the inevitable result of endless ‘development’ and the inexorable quest to increase profit margins, bottom lines and shareholder value.25 Explorers understand the role monetary investment plays in creating both new constructions and ruins, and, where preceding movements connected to my notion of place hacking might condemn capitalism for creating sterile space and seek to turn streets into battlefields in an effort to overthrow the dominant social order,26 urban explorers celebrate capitalism for both its successes and its failures, rejoicing over the construction of new skyscrapers as well as the economic crises that empty them.

pages: 345 words: 75,660

Prediction Machines: The Simple Economics of Artificial Intelligence
by Ajay Agrawal , Joshua Gans and Avi Goldfarb
Published 16 Apr 2018

The Cognitive Costs of Judgment People who have studied decisions in the past have generally taken rewards as givens—they simply exist. You may like chocolate ice cream, while your friend may like mango gelato. How you two came to your different views is of little consequence. Similarly, we assume most businesses are maximizing profit or shareholder value. Economists looking at why firms choose certain prices for their products have found it useful to take those objectives on faith. Payoffs are rarely obvious, and the process of understanding those payoffs can be time consuming and costly. However, the rise of prediction machines increases the returns to understanding the logic and motivation for payoff values.

pages: 258 words: 71,880

Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street
by Kate Kelly
Published 14 Apr 2009

Glenn Schorr, a UBS AG securities analyst, asked. Schwartz avoided the timing question. The key, he said, was to continue conducting business as usual. He viewed the loan as “a bridge [to] a more permanent solution.” That solution could be anything that allowed Bear to work with customers and to maximize shareholder value, he added. There were no more questions after that. 2:00 P.M. It had been a brutal week for David Kim, who worked in Bear’s legal department handling documents related to derivatives trades. The Moody’s downgrade on Monday had triggered the possibility that dozens of Bear’s counterparties would back away.

pages: 300 words: 76,638

The War on Normal People: The Truth About America's Disappearing Jobs and Why Universal Basic Income Is Our Future
by Andrew Yang
Published 2 Apr 2018

Thanks to Milton Friedman, Jack Welch, and other corporate titans, the goals of large companies began to change in the 1970s and early 1980s. The notion they espoused—that a company exists only to maximize its share price—became gospel in business schools and boardrooms around the country. Companies were pushed to adopt shareholder value as their sole measuring stick. Hostile takeovers, shareholder lawsuits, and later activist hedge funds served as prompts to ensure that managers were committed to profitability at all costs. On the flip side, CEOs were granted stock options for the first time that wedded their individual gain to the company’s share price.

pages: 264 words: 76,643

The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations
by David Pilling
Published 30 Jan 2018

” * * * — Just to be absolutely clear: the 2008 banking crisis, whose effects were still rippling through the world nearly a decade later, cannot be blamed on the way we account for financial services in our national accounts. The crisis had its roots in race-to-the-bottom deregulation, naive faith in the capacity of markets to self-correct, and a perverse “shareholder-value” ideology that allowed a few thousand masters-of-the-universe bankers to ransack their own institutions while simultaneously feeling good about themselves. There were many other factors, from the hugely increased (and unnecessary) mathematical complexity of financial instruments to the inherently corrupt relationship between the ratings agencies and the clients who paid them.

The Jobs to Be Done Playbook: Align Your Markets, Organization, and Strategy Around Customer Needs
by Jim Kalbach
Published 6 Apr 2020

Reducing costs and maximizing financial returns, particularly for shareholders, became a priority. The widely held belief was that profit was good for society: the more companies could earn, the better off we all would be. Unfortunately, this policy has not made America more prosperous.7 Since the 1970s, American workers have been working more and making less. At the same time, shareholder value in the form of dividends and CEO wages has increased. It’s no wonder that trust in corporations is at an all-time low. We’re seeing businesses increasingly blamed for many of our social, environmental, and economic problems. But the balance is shifting, in particular through initiatives around what’s called “shared value,” a term coined by strategy experts Michael Porter and Mark Kramer in their landmark article, “Creating Shared Value.”8 No longer can companies operate at the expense of the markets they serve.

pages: 240 words: 78,436

Open for Business Harnessing the Power of Platform Ecosystems
by Lauren Turner Claire , Laure Claire Reillier and Benoit Reillier
Published 14 Oct 2017

Chapter 2 The meteoric rise of platform businesses Over the past 20 years or so, platform businesses have grown at an unprecedented pace and have been able to overtake many traditional businesses. Often, this significant shift in business models and value creation has been overshadowed by the much broader digitalization trend. Not only have platform businesses grown at a faster pace than traditional ones, but they have also created more shareholder value and attracted more venture capital (VC) investment. It is therefore not a surprise to see that platforms are now powering many of the best-known brands in the world and are at the heart of most sharing economy initiatives. Digital transformation and new platform business models Over the last 20 years, digital technologies have significantly disrupted traditional businesses.

pages: 223 words: 71,414

Abolish Silicon Valley: How to Liberate Technology From Capitalism
by Wendy Liu
Published 22 Mar 2020

Sure, there are occasionally unfortunate consequences, like mass layoffs after a company has been taken over by private equity and asset-stripped, but that’s just the cost of efficiency. And anyway, look at all these smart people with prestigious degrees repeating the importance of maximising shareholder value — they can’t all be wrong. In the wake of the financial crisis, disillusionment with Wall Street spread pretty quickly. It became clear that all the rhetoric about Wall Street’s positive impact on the world was more marketing than fact, and people stopped believing the story that Wall Street told about itself.

pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present
by Jeff Madrick
Published 11 Jun 2012

“It is more likely than not that any given acquisition will fail,” Sirower concluded, based on his own research and that of others in the 1980s and 1990s. While the shareholders of the target companies consistently gained in the acquisitions from the premiums paid over the prevailing stock prices, these gains were not adequate to offset the consistent losses in shareholder value of the acquiring firms. BusinessWeek later did a follow-up study in the early 2000s, confirming that stockholders of acquiring firms fared worse a year later on most deals. “So eager were they to snare a deal,” wrote the magazine, “that the premium they paid gobbled up the merger’s whole potential economic gain from the get-go.”

…

Welch was named CEO near the bottom of a long bear market and retired near the top of the longest bull market in history. GE’s profits rose ten times over these years to $13 billion in profits on $130 billion in sales. But its stock price rose by thirty times. When Welch took over GE in 1980, it was the ninth most profitable company in the nation. Now it was first, second, or third. Shareholder value reached $500 billion, more than any other company in America. The stock price was Welch’s personal measure of achievement, though he later denied it. The boom of the late 1990s on balance sent the wrong message to American managers: cut costs rather than innovate. Despite its appeal, In Search of Excellence had little true staying power. —— Welch was born in 1935 in Peabody, Massachusetts, and was brought up in the pretty coastline town of Salem, where his parents moved when he was nine.

pages: 677 words: 206,548

Future Crimes: Everything Is Connected, Everyone Is Vulnerable and What We Can Do About It
by Marc Goodman
Published 24 Feb 2015

Surprisingly, the org chart of Crime, Inc. would look remarkably familiar to anybody in the traditional corporate world. It’s part Peter Drucker mixed with the latest cutting-edge business practices taught at Wharton or Harvard Business School. While there are elements of the digital underground that are not purely motivated by profit, such as hacktivists, Crime, Inc. is first and foremost about the money—shareholder value, if you will. These criminal enterprises go to great lengths to ensure their sustainability and as such are almost exclusively located in jurisdictional safe havens, places with weak governments, unstable political regimes, and police forces willing to look the other way, for a fee of course.

…

In an instant, the AP’s two million followers had retweeted the news thousands of times, and the world went into panic mode. On Wall Street, the reaction was both swift and staggering: the Dow Jones Industrial Average and the S&P 500 plummeted. Within three minutes, the AP’s tweet had wiped out $136 billion in shareholder value. Thereafter, the tweets flew fast and furious. At 1:13 p.m., the AP confirmed that the explosion-reporting tweet was bogus. At 1:16 p.m., the White House press secretary, Jay Carney, was forced to comment on live TV: “I can say that the President is fine, I was just with him.” Finally at 1:17 p.m., the Syrian Electronic Army (SEA) admitted it had hacked the Associated Press.

pages: 280 words: 82,623

What Got You Here Won't Get You There: How Successful People Become Even More Successful
by Marshall Goldsmith and Mark Reiter
Published 9 Jan 2007

Communicates a positive, “can do” sense of urgency toward getting the job done 69. Holds people accountable for their results 70. Successfully eliminates waste and unneeded cost 71. Provides products/services that help our company have a clear competitive advantage 72. Achieves results that lead to long-term shareholder value Written Comments What are your strengths? Or if you are evaluating someone, what does this person do that you particularly appreciate? (Please list two or three specific items.) What specifically might you do to be more effective? Or if evaluating someone, what suggestions would you have for this person on how she or he could become even more effective?

pages: 444 words: 86,565

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions
by Joshua Rosenbaum , Joshua Pearl and Joseph R. Perella
Published 18 May 2009

In the absence of explicit company guidance on target capital structure, the banker examines the company’s current and historical debt-to-total capitalization ratios as well as the capitalization of its peers. Public comparable companies provide a meaningful benchmark for target capital structure as it is assumed that their management teams are seeking to maximize shareholder value. In the finance community, the approach used to determine a company’s target capital structure may differ from firm to firm. For public companies, existing capital structure is generally used as the target capital structure as long as it is comfortably within the range of the comparables.

pages: 791 words: 85,159

Social Life of Information
by John Seely Brown and Paul Duguid
Published 2 Feb 2000

But few could imagine what the right organization structure might be.3 The pressure to do something, anything, gave birth to innumerable fashions and fads in management. Consultants firmly Page 92 told managers how to run their businesses. Many of their imperatives, however, had people running in circles or opposing directions. Focus only on quality, on customer satisfaction, or on shareholder value, some said. Pursue core competency or diversification. Internalize, internationalize, divest, or merge. Integrate backward, forward, or outsource. Go hollow, flat, or virtual. One of the many virtues of "business process reengineering," by contrast, was that it was clear, direct, and consistent.

pages: 320 words: 86,372

Mythology of Work: How Capitalism Persists Despite Itself
by Peter Fleming
Published 14 Jun 2015

Indeed, the two trends operate in tandem, with some rather bizarre consequences. Financialization and shareholder capitalism perhaps represents the apogee of rationalized capitalism. Here, the numerical monetary logic of pure accumulation truly creates an inversion of ends and means that is shocking. Whatever it takes to increase shareholder value – firing staff, plundering the natural environment, creating extremely volatile property-market bubbles – must be pursued in a single-minded fashion, even if it harms the organization in question. Like all forms of hyper-rationalization, shareholder capitalism fosters a mentality that is generally antisocial and sometimes diabolical when observed from an outside perspective.

pages: 283 words: 85,824

The People's Platform: Taking Back Power and Culture in the Digital Age
by Astra Taylor
Published 4 Mar 2014

Though it’s hard to believe now, newspapers were once the envy of the business world. Through the eighties and nineties, 20, 30, even 40 percent returns on investment were not uncommon, triple the norm for U.S. industry over the same period. Dollar signs in their eyes, chains devoured up local papers, consolidating and centralizing to maximize shareholder value, sometimes purchasing vibrant independent publications just to kill off competition. The overlords of monopoly journalism became increasingly disconnected from the communities they were supposed to serve. And when profits plateaued, they gutted themselves to maintain growth, trimming staff, reducing reporting budgets, and publishing fluff.

pages: 269 words: 83,307

Young Money: Inside the Hidden World of Wall Street's Post-Crash Recruits
by Kevin Roose
Published 18 Feb 2014

He wanted to work in finance, with all the glitz and glamour the Wall Street lifestyle afforded him, but he also wanted to keep himself grounded in the values of Main Street. He wanted to absorb the good parts of the private equity experience—the management experience, the deep knowledge of how businesses work, and the ability to turn around struggling companies—without buying into the industry’s abiding principle of “shareholder value,” which held that a strategy of mass layoffs, pension cuts, and tax avoidance could be good, as long as it made more money for the private equity firm and its investors. If Derrick could truly thread that needle, and harmonize the cognitive dissonance of working in finance as a nonbeliever, it would be a rare feat, and it would mean that perhaps he’d be able to sustain his New York life after all.

pages: 307 words: 82,680

A Pelican Introduction: Basic Income
by Guy Standing
Published 3 May 2017

Star bond investor Bill Gross has also come out in support of a basic income as a response to what he perceives as the coming robot-driven ‘end of work’.13 In July 2016, there was even a Facebook Live roundtable held in the White House on automation and basic income, though in a report issued the following December the US President’s Council of Economic Advisers rejected the idea, seemingly based on its chairman’s critical remarks six months earlier that were dissected in Chapter 4.14 A significant convert to the technological unemployment perspective is Andy Stern, former head of the US Service Employees International Union (SEIU) and the first leading trade unionist to come out in favour of a basic income.15 In a 2016 book widely publicized in the US, Stern claimed that 58 per cent of all jobs would be automated eventually, driven by the ethos of shareholder value. He told the American media group Bloomberg, ‘It’s not like the fall of the auto and steel industries. That hit just a sector of the country. This will be widespread. People will realize that we don’t have a storm anymore; we have a tsunami.’16 Nevertheless, there are reasons to be sceptical about the prospect of a jobless or even workless future.

pages: 286 words: 87,401

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies
by Reid Hoffman and Chris Yeh
Published 14 Apr 2018

Sharing economy services like Airbnb can bring more tourism and diversity into the cities in which they operate. And Amazon is changing the entire retail industry, which affects everyone. As Spider-Man teaches us, with great power comes great responsibility. We believe that the responsibilities of a blitzscaler go beyond simply maximizing shareholder value while obeying the law; you are also responsible for how the actions of your business impact the larger society. But even beyond the moral imperatives, responsible blitzscaling is good business strategy. Society provides the ecosystem in which you live, and in which your business operates, which means that it can rightly claim some responsibility for your success.

pages: 252 words: 78,780

Lab Rats: How Silicon Valley Made Work Miserable for the Rest of Us
by Dan Lyons
Published 22 Oct 2018

That means Kothari’s company has paid for kids in Nicaragua to go to school for a year and funded microloans for women entrepreneurs in Guatemala. Kothari says his experience at SEI “opened me up to the idea that there are multiple ways to run a business, and profit is not the only way to maximize shareholder value.” When Austen Moye came to Northeastern in the fall of 2015 he was enrolled as a chemistry major and planned to go to medical school. That plan ended after he took Shaughnessy’s introductory course, Global Social Enterprise, during his first semester, and then signed up for another Shaughnessy class in the spring.

pages: 266 words: 87,411

The Slow Fix: Solve Problems, Work Smarter, and Live Better in a World Addicted to Speed
by Carl Honore
Published 29 Jan 2013

Study after study confirms that specialists in almost every field, from law to medicine to finance, overestimate their expertise and underestimate their mistakes. In one study of autopsy reports, doctors who were completely certain of their diagnosis while a patient was still alive turned out to be wrong 40 per cent of the time. Or look at the corporate world, where three of every four large mergers end up destroying, rather than creating, shareholder value, despite the blustering endorsements from legions of CEOs, consultants and pundits. A long-term study of predictions made by 284 leading political and economic commentators delivered equally damning findings. When asked to estimate the chances of wars in the Middle East, the future of emerging markets and the political prospects of world leaders, the pundits performed worse than basic computer algorithms.

pages: 281 words: 83,505

Palaces for the People: How Social Infrastructure Can Help Fight Inequality, Polarization, and the Decline of Civic Life
by Eric Klinenberg
Published 10 Sep 2018

More fundamentally, however, the election and the subsequent congressional hearings with high-tech leaders revealed that the companies that manage large-scale, for-profit communications infrastructures are set up to prioritize generating revenue above delivering public goods. Publicly traded corporations, including Facebook, are legally required to maximize shareholder value, and while some CEOs define value expansively, most focus on the bottom line. Zuckerberg surely didn’t want his company to facilitate malevolent intervention into the democratic process; and yet, as investigative reporters discovered, Facebook’s advertising salespeople and engineers made great efforts to help domestic political advocacy groups, including the anti-Clinton, anti-Islam organization Secure America Now, reach their targeted audiences.

pages: 301 words: 88,082

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business
by Richard Brooks
Published 2 Jan 2014

When in 2009 insurance company RSA, formerly Royal Sun Alliance, threatened to move its head office out of the UK because the 1984 anti-tax avoidance laws would catch the overseas profits it shifted into tax havens, the Revenue responded by offering a deal under which the company could put its overseas reinsurance business in Dublin (to be taxed at 12.5%) without falling foul of the rules, giving RSA all the benefit of moving its head office offshore with none of the hassle. Or, as the company’s spokesman told me: ‘We have developed a structure which delivers significant shareholder value without the need to re-domesticate.’‌15 It reflected, said the company’s chief executive Andy Haste, ‘a very good relationship with HMRC’.‌16 Just as banks serve their big clients through ‘relationship banking’, the tax authorities were now practising ‘relationship taxing’, with tax bills tailored as much to corporate wishes as the law and the Revenue’s published policies at the time, which still had it that such profits would be caught by the 1984 laws.

pages: 438 words: 84,256

The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival
by Charles Goodhart and Manoj Pradhan
Published 8 Aug 2020

P., Keen, M. and J. Vella, ‘Destination-Based Cash Flow Taxation’, Oxford University Centre for Business Taxation, Working Paper 2017/1. Reproduced with permission. 2In an article entitled ‘Rethink the purpose of the corporation’ (Financial Times, 12 December 2018), Martin Wolf criticises the mantra of shareholder value maximisation, affirming that in the cases of highly leveraged banking the Anglo American model of corporate governance does not work. He refers to a number of books—including Colin Mayer’s 2018 Prosperity—that suggest that capitalism is substantially broken. © The Author(s) 2020 C. Goodhart, M.

pages: 286 words: 87,168

Less Is More: How Degrowth Will Save the World
by Jason Hickel
Published 12 Aug 2020

It’s what is driving the pharmaceutical companies behind the opioid crisis in the United States; the beef companies that are burning down the Amazon; the arms companies that lobby against gun control; the oil companies that bankroll climate denialism; and the retail firms that are invading our lives with ever-more sophisticated advertising techniques to get us to buy things we don’t actually want. These are not ‘bad apples’ – they are obeying the iron law of capital. Over the past 500 years, an entire infrastructure has been created to facilitate the expansion of capital: limited liability, corporate personhood, stock markets, shareholder value rules, fractional reserve banking, credit ratings – we live in a world that’s increasingly organised around the imperatives of accumulation. From private imperative to public obsession But understanding the inner dynamics of capital only partly explains the growth imperative. To really grasp the pressures that are at play, we also have to pay attention to what governments are doing.

pages: 274 words: 81,008

The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything
by Jason Kelly
Published 10 Sep 2012

Blackstone’s Schwarzman and James do speak and answer questions on calls to announce earnings results. But being public and being in the public eye are different, and Roberts conceded that the outside world has forced a change in his and his competitors’ behavior. “It’s gone from all that matters is shareholder value to being much more than that,” he said, rattling off efforts around the environment, government relations, and outreach to unions. The firm has sought the advice of former U.S. House Majority Leader Richard Gephardt. Andy Stern, in the past decade the fiercest critic of private equity in the labor world, spoke at a KKR meeting in 2011.

pages: 287 words: 85,518

Please Report Your Bug Here: A Novel
by Josh Riedel
Published 17 Jan 2023

In her newsletter, Liao confirmed that the Corporation had hidden the Portals technology in the DateDate codebase before the acquisition as a way to fast-track its launch and circumvent government regulations. Most importantly, Liao explained that while the technology found in the DateDate codebase was the foundation for Portals, its potential was far greater. “What if,” she mused, “they didn’t think about shareholder value for one day? To judge by what I’ve learned about the technology, the Corporation could, theoretically, invent a way to travel to entirely new places. Not to new planets or to deep pockets of the Pacific, not to the past or to the future, but to places parallel to this world, that exist alongside us.

pages: 277 words: 81,718

Vassal State
by Angus Hanton
Published 25 Mar 2024

A year later Facebook floated on the NASDAQ at $104 billion. US investors realised that it pays to wait. Long before all these examples emerged, Jeff Bezos coolly laid down how tech investment must work. In 1997 he wrote to Amazon investors: We believe that a fundamental measure of our success will be the shareholder value we create over the long term… We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions… We choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.10 None of this means that US businesses are not ruthless in their drive for efficiency.

pages: 336 words: 90,749

How to Fix Copyright
by William Patry
Published 3 Jan 2012

There is no reason to believe that extending copyright will induce corporate copyright owners to spend more money on preservation than would the vast number of entrepreneurs who would have access to ﬁlms but for their failure to go into the public domain.128 The decision of studios whether to invest in any ﬁlm is based on a perceived ability to turn a proﬁt from that particular movie. The same is true of any other copyrighted work. The only obligation of the media corporations that dominate the ownership of copyrights is to their shareholders, and that obligation is to maximize shareholder value. If a better return on investment can be made on real estate, that is where the money will go. If the money is better spent on the latest blockbuster rather than restoring a movie from the 1940s with no chance of another theatrical release, that’s where the money will go, and understandably so.

pages: 406 words: 88,820

Television disrupted: the transition from network to networked TV
by Shelly Palmer
Published 14 Apr 2006

It should be noted that, when queried, most seasoned recording industry executives will tell you that it is not their job to move the industry forward or lead the technological revolution. Their jobs are to make a profit each quarter and, in the case of publicly traded companies, to increase shareholder value to the highest possible extent. If it were possible to take advantage of any new technology and accomplish their primary objec-tives, they would be happy to do so. This is just another stunning example of business rules and strategies lagging behind technological innovation. Copyright © 2006, Shelly Palmer.

Undoing the Demos: Neoliberalism's Stealth Revolution
by Wendy Brown
Published 6 Feb 2015

Along the way, the purchase of markets and “market solutions” has expanded to a range of domains hitherto associated with public services or common goods — from education to military intelligence to environmental stewardship. Simultaneously, the number and purview of democratically debatable issues has been drastically reduced by the sway of “good governance” and “best practices” — two notions originating in a corporate culture devoted to the creation of shareholder value but later co-opted by public officials whose main concern is the standing of the national debt in bondholders’ eyes. For a long time, many critics on the left hoped that the changes they were witnessing might be transient. As the unconstrained quest for short-term capital gain would bear its bitter fruits, the thinking went, gaping inequalities and the prospect of an environmental catastrophe 294 would induce elected officials to change course or, if they failed to do so, expose them to a massive popular upheaval.

pages: 332 words: 91,780

Starstruck: The Business of Celebrity
by Currid
Published 9 Nov 2010

Stars certainly obtain more value from their paycheck than the studios get in ticket sales. Elberse notes that stars are unable to generate substantial additional film revenue individually; the real revenue generation is produced through hiring a cast of stars. If a studio’s goal is to just increase shareholder value rather than revenue, hiring just “ordinary talent” suffices.57 By just these measures, studios are paying way too much in the belief that the intangible celebrity residual will draw audiences, a mistake often called “the curse of the superstar.”58 “There is insufficient reason to support the hypothesis that stars add more value than they capture,” Elberse concludes.

pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It
by Timothy Noah
Published 23 Apr 2012

Meanwhile, Apple’s profit represented 59 percent of the sales price for an iPhone and 30 percent for an iPad.16 Apple is, by the reckoning of Fortune magazine, the twentieth-most-profitable company in the world, but even worldwide it doesn’t come close to making Fortune’s list of the fifty biggest employers. With a total head-count of 60,400 in 2011, Apple had less than one quarter as many employees as Fortune’s fiftieth-biggest employer, AT&T. At the time of Apple founder Steve Jobs’s death in 2011, many commentators compared him to Henry Ford. As innovators and creators of shareholder value the two men were indeed comparable. But as employers they were not. During the 1930s Ford employed more than one hundred thousand people at a single plant—Michigan’s River Rouge complex. And the Rouge was only one of many Ford plants in the United States and abroad.17 Foreign trade enriches the United States, but it also changes employees’ relationship with their employers.

pages: 209 words: 89,619

The Precariat: The New Dangerous Class
by Guy Standing
Published 27 Feb 2011

But the model’s rigidities hindered its adaptability in the globalisation era. Eventually, the government rewrote corporate law to move towards the US model, enabling firms to introduce performance-related wages, share options, outside directors, promotions based on competence rather than age, pursuit of shareholder value and the hiring of salaried employees in mid-career. The firm was being commodified, orchestrated by financial capital and by owners – shareholders not managers. It was not fully Americanised, but the trend was clear. The proportion of shares held by foreigners rose nearly sixfold between 1990 and 2007.

pages: 310 words: 91,151

Leaving Microsoft to Change the World: An Entrepreneur's Odyssey to Educate the World's Children
by John Wood
Published 28 Aug 2006

“To close the press conference, the Microsoft management ensemble sings a song—with accompaniment by the band [Band? Had I approved the budget for a band?]. The song should show the vigor and vitality of Microsoft employees.” I tried to imagine Jack Welch and his cadre of senior GE executives crooning a tune to the assembled press—“We’re just wild about shareholder value, and our shareholders are wild about us.” Or Donald Trump singing, “Give my regards to Broadway, as I am planning to buy it soon.” I suppressed my smile and changed the subject. “We have to make sure that Bill is well briefed and is constantly citing examples of the great work Microsoft is doing in China.

pages: 346 words: 90,371

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

These banks operate a ‘transaction’ banking model (Collins, 2012) characterised by a preference for centralised and automated credit-scoring techniques to make loan decisions, a need for high quarterly returns on equity and a strong preference for collateral. Increasingly, the model favours the generation of profits through the securitisation and selling on of loans, with the most popular type of securitised loan being residential mortgage-backed securities. The imperatives of short-term shareholder value both incentivise excessive risk-taking and mean that lending to SMEs – involving high transaction costs for relatively small loans – does not make business sense for larger banks (Berger and Udell, 2002). By contrast, in other countries, for example Germany, Switzerland and Austria, there is a much stronger culture of ‘relationship banking’.

pages: 311 words: 90,172

Nothing but Net: 10 Timeless Stock-Picking Lessons From One of Wall Street’s Top Tech Analysts
by Mark Mahaney
Published 9 Nov 2021

bought 30% of Alibaba for $1 billion. That 30% stake would have been worth as much at $250 billion in late 2020. A theoretical 250x return! I’m only highlighting here the good acquisitions. Some bad ones get called out later in the book. But the more I reflect on the good acquisitions, the more I am struck by how much of the shareholder value created in the tech sector has been driven by organic revenue growth. As of February 2021, Amazon has amassed a $1.6 trillion market cap (one of the largest in the world), and although it has acquired many companies along the way, none have contributed a material amount (10%+) to the company’s market cap.

pages: 292 words: 94,660

The Loop: How Technology Is Creating a World Without Choices and How to Fight Back
by Jacob Ward
Published 25 Jan 2022

He may very well be right that the military holds itself to higher standards, imposes true ethical boundaries, as compared with the companies I’ve spent so many years interviewing. Certainly he’s right that the improvisational process by which I’ve watched companies apply technology to analyzing and shaping human behavior, rationalizing their ad hoc policies using either shareholder value or ever-shifting corporate principles, is not adequate to the outrageous influence they’ve come to wield over our lives. But the military and law enforcement are specifically charged with matters of life and death, liberty and confinement. When they bring a product like AI to bear on identifying the cadence of a human pair of legs, or predicting the whereabouts of an undocumented immigrant based on their financial history, the point isn’t to sell that person insurance.

pages: 333 words: 86,662

Zeitgeist
by Bruce Sterling
Published 1 Nov 2000

“He doesn’t have to know.” Starlitz scratched his greasy hair. “We can try the Christmas thing. It’s an entry-way,” he explained. “Every twentieth-century Christmas is pretty much like all the other ones. Christmas got more consumer oriented every year of the century, as the Judeo-Christian thing lost its shareholder value, but the holidays tend to work for him. The surveillance always eases around Christmas. People are sloppy drunk and fighting with their relatives, so they never look hard at strangers. The newspapers are skinnier, the TVs are full of old comedians. Back when I used to see my dad a lot, he would always show up around Christmas.… Kinda wander into town to see me for the holidays, you know.… In Florida, mostly.”

pages: 326 words: 91,559

Everything for Everyone: The Radical Tradition That Is Shaping the Next Economy
by Nathan Schneider
Published 10 Sep 2018

The economy keeps getting more efficient and generating more value, but most people are getting a smaller and smaller portion of it. The rest of the value gets siphoned upward to the few and wealthy. More than pleasing customers, more than creating jobs, business keeps getting better at serving the single-minded goal of maximizing shareholder value—the rewards for those who already have excess to invest. Economist Thomas Piketty’s best-selling book Capital in the Twenty-First Century argued that the returns to investors are careening the world into a new feudalism; his most celebrated critic, twenty-six-year-old MIT graduate student Matthew Rognlie, differed only in stressing that the major share of the phenomenon was in real estate.4 An uptick in the minimum wage isn’t going to fix this.

Making It All Work: Winning at the Game of Work and the Business of Life
by David Allen
Published 30 Dec 2008

One way to think about that is to imagine your year-end review by your boss or your board for what they are going to hold you accountable to have done well. Typical duties here might include asset management, staff development, administrative support, customer service, product design, quality control, client development, shop-floor efficiency, employee morale, increasing shareholder value, and so on. With a few exceptions, such as being hired simply to write code or to ensure security, most people are expected to wear several hats in their job. If you run your own enterprise, or simply work alone, you have to handle all seven categories of organizational focus—executive, administration, public relations, sales, finance, operations, and quality.

There Is No Planet B: A Handbook for the Make or Break Years
by Mike Berners-Lee
Published 27 Feb 2019

If you work for an organisation that doesn’t meet the criteria, and you don’t want to be part of the problem, I think you need to leave or ﬁnd an effective way of changing it from within. How can businesses think about the world? 159 Note that maximising shareholder revenue doesn’t feature in the criteria at all. Maximising shareholder value potentially could, as long as the shareholders are operating from an Anthropocene-ﬁt set of values that explicitly go beyond ﬁnancial growth. How can businesses think about the world? Several of the businesses that I work with say that they want to ‘leave the world better than we found it’, using either those exact words or something similar.

pages: 321 words: 92,828

Late Bloomers: The Power of Patience in a World Obsessed With Early Achievement
by Rich Karlgaard
Published 15 Apr 2019

Democratic pollster Mark Penn agrees with him: “The old brick-and-mortar economy is being regulated to death. The new tech-driven economy has been given a pass to flout regulation and build vast value.” It’s no surprise, therefore, that investment capital pours into the bits economy and prefers to avoid the atoms economy. Uber, the online car-sharing service, had, in 2018, a shareholder value of $72 billion, even though it was only nine years old and retained around ten thousand full-time employees. General Motors, a 110-year-old company, has a current market cap—or valuation—of $52 billion. Stop and think about this. Uber is worth $20 billion more than GM. The enormous market cap advantage held by bits companies becomes self-perpetuating.

pages: 401 words: 93,256

Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life
by Rory Sutherland
Published 6 May 2019

*Certainly her talent for spotting a con artist would far exceed her ability to spot a doctored car. *I know it is professional suicide to acknowledge Wikipedia, but in a chapter on satisficing it seems strangely appropriate. Wikipedia isn’t perfect, but it is really, really good. *Modern public companies have a worryingly short lifespan as a result. *Exam question: is the shareholder value movement destroying capitalism? *It is a useful heuristic to avoid airport hotels, as they have a bit of a captive market. However, there is an exception to every heuristic and the couple, as is typical of them, had chosen what must be the world’s only great restaurant found at an airport hotel.

pages: 347 words: 91,318

Netflixed: The Epic Battle for America's Eyeballs
by Gina Keating
Published 10 Oct 2012

Antioco warned that threats of a proxy fight would distract the company from the battle it faced to retain customers, potentially throwing away tens of millions already spent on new initiatives. “The turmoil and uncertainty you have created threatens to destroy the organization, jeopardize our success and could prove damaging to shareholder value,” Antioco wrote in a letter to Icahn that he filed with the SEC. Just one month remained before Blockbuster’s annual meeting in Dallas, and Antioco turned to protecting his company and his job from Icahn and his followers. In Los Gatos, McCarthy and Hastings watched with interest. Their hope for a speed bump to derail Blockbuster Online had been answered.

Concentrated Investing
by Allen C. Benello
Published 7 Dec 2016

The company was founded by chief executive Brian Roberts’s father, Ralph, in 1963,8 and the Roberts family retained control of Comcast through a dual share-class voting structure.9 The family’s super-voting stock gave Roberts a third of the vote despite holding an economic interest equivalent to just 1 percent of Comcast’s 3 billion outstanding shares. Chieftain had urged the company to eliminate the dual-class voting structure, arguing that the Roberts family’s voting position was “inconsistent with 21st-century corporate governance.”10 [T]he maximization of shareholder value has been an after-thought for this management team. Protected by super-voting stock, management has been free to ignore shareholders entirely. The Roberts family seemed unlikely to surrender control of the company by scrapping the dual-class stock. Chieftain’s only hope was that public embarrassment and Comcast’s poor stock performance might lead the family to start caring about its public shareholders.

pages: 316 words: 94,886

Decisive: How to Make Better Choices in Life and Work
by Chip Heath and Dan Heath
Published 26 Mar 2013

Quaker wasn’t even making a “whether or not” choice; it was making a “yes or yes” choice. QUAKER’S DECISION WAS PRETTY egregious, but the company is hardly alone in making an ill-advised acquisition. A KPMG study of 700 mergers and acquisitions (mentioned previously in the introduction) found that 83% of them did not boost shareholder value. This suggests a good rule of thumb for business leaders: If you’ve spent weeks or months analyzing a potential target, and what you’ve learned has convinced you to make an offer, don’t. Five times out of six you’ll be right! Of course, we shouldn’t expect acquisitions, with their attendant forces of ego and emotion and competition, to be typical of organizational decision making.

pages: 384 words: 93,754

Green Swans: The Coming Boom in Regenerative Capitalism
by John Elkington
Published 6 Apr 2020

J., 81–84 River Thames, 43 Roadshow, Green Swan, 242–247 Robèrt, Karl-Henrik, 151 Roberts, Russ, 80 Robins, Nick, 208, 243 robotics, 177 Rockefeller Foundation, 138 Romanovitch, Sacha, 125 Roosevelt, Franklin D., 16, 235 Rose, Charlie, 183 Rosling, Hans, 28 Roundup herbicide, 68 Russia, 113–114 Ruxton, Jo, 92 S Sackler family, 13 Sagan, Carl, 183 Samsung, 126 Scharmer, Otto, 37 Schneider, Mark, 96 Schumpeter, Joseph, 203 Schwarzenegger, Arnold, 77–78 science, 83–84, 121–123, 183–184, 217–218 Scientific American (magazine), 65, 98–99 Seba, Tony, 241 737 Max 8 aircraft, Boeing, 194–197 Shanghai, China, 108–109 shared natural resources, 204 shared value, 59–60, 149f shareholder primacy, 14, 205 shareholder value, 149f Sharpe, Bill, 37 Shell, 119, 214 Siemens, 216 Silent Spring (Carson), 193 Singularity University (SU), 35–36, 83, 186–187, 188, 237–238 Slope of Enlightenment stage, Gartner Hype Cycle, 175 smart cities, 177 Smit, Tim, 215, 216, 218, 237 Smith, Adam, 18, 25, 80, 85 social media, Black Swan thinking in, 53 Social Stock Exchange, 218 Societal Needs, in GGC approach, 187 society climate-induced collapse, 8, 10 in Future-Fit change approach, 149, 149f, 150, 150f, 151, 152f Green Swans in, 42 leading-edge business models and, 52 Novo Nordisk engagement with, 156, 157–158 Sonar, 140–141 Sørensen, Lars Rebien, 155–158 Sorrell, Martin, 124–125 Soskice, David, 211–212 space junk, 111–116 SpaceX, 115 SPARK 2019 conference, 244–245 sponge cities, 136, 255 Stalin, Joseph, 203 State of New York, 128–129 Steele, Tanya, 200, 224 Steffen, Alex, 67 Stelzer, Irwin, 5, 15, 196 Stiglitz, Joseph, 60, 204 stock exchanges, tracking wicked problems in, 90–91 Stockdale, James, 229 Stoermer, Eugene, 87 Stormer, Susanne, 159 stranded assets, 48, 71–73, 243 The Structure of Scientific Revolutions (Kuhn), 121–122, 191, 230 subsidies for fossil fuels industry, 67 Suez Western Australia, 134 The Sun Also Rises (Hemingway), 79 super wicked problems, 84–86 Superbugs exhibit, London Science Museum, 106–107 Superfund legislation, US, 136 Susskind, Jamie, 224 sustainability.

pages: 295 words: 89,441

Aiming High: Masayoshi Son, SoftBank, and Disrupting Silicon Valley
by Atsuo Inoue
Published 18 Nov 2021

Back then Alibaba wasn’t a listed company and SoftBank weren’t listed as a communications company either, so this time things are completely different. From a financial point of view in terms of protecting our treasury and other such aspects Covid is not something which poses any sort of risk whatsoever.’ The most important indicator for an investment company is not its net income but rather its net asset value, and SoftBank Group shareholder value actually increased from the end of March 2020 to September 2020, going from 21.7 trillion yen to 27.3 trillion yen. On the evening of 9 June 2020, the SoftBank Group announced the test results from a novel coronavirus antigen test it was providing in a live broadcast on YouTube featuring Son and a number of medical staff.

pages: 111 words: 1

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
by Nassim Nicholas Taleb
Published 1 Jan 2001

We can randomly construct a speech imitating that of your chief executive officer to ensure whether what he is saying has value, or if it is merely dressed-up nonsense from someone who was lucky to be put there. How? You select randomly five phrases below, then connect them by adding the minimum required to construct a grammatically sound speech. We look after our customer’s interests / the road ahead / our assets are our people / creation of shareholder value / our vision / our expertise lies in / we provide interactive solutions / we position ourselves in this market / how to serve our customers better / short-term pain for long-term gain / we will be rewarded in the long run / we play from our strength and improve our weaknesses / courage and determination will prevail / we are committed to innovation and technology / a happy employee is a productive employee / commitment to excellence / strategic plan / our work ethics.

pages: 382 words: 100,127

The Road to Somewhere: The Populist Revolt and the Future of Politics
by David Goodhart
Published 7 Jan 2017

And now it has been dismembered, with its plants and businesses either closed or sold to others, mainly foreign competitors. (It leaves a particularly large wound in the Teeside region where it once employed tens of thousands.) Its messy conglomerate structure was not popular with the advocates of shareholder value in the 1980s and 1990s and to defend itself from a threat from takeover predator Hanson Trust it sold off its pharmaceutical arm Zeneca in 1993. The pharmaceutical division had been a loss-maker for more than two decades after the war but then in the 1960s it had its beta-blocker drug breakthrough and became ICI’s most profitable arm in the 1980s and 1990s.

pages: 362 words: 99,063

The Education of Millionaires: It's Not What You Think and It's Not Too Late
by Michael Ellsberg
Published 15 Jan 2011

If you want to earn more money, develop your skills and talents to facilitate the creation of lots of social value. Focus on giving, and the getting will largely take care of itself.”7 From a certain perspective, these viewpoints are quite problematic. Can these authors really say that the Wall Street executives who received multimillion-dollar bonuses, while evaporating trillions of dollars of shareholder value and nearly causing a worldwide financial meltdown, were providing “social value” worth millions of dollars? Is the guy who gets rich building yachts for multibillionaires really providing that much social value in the grand scheme of things? These perspectives ignore vast failures in market efficiency, which stem from conglomerations of power and concentrations of wealth, which lobby for favorable policies and distort market forces, making a mockery of the neat charts of the “efficient markets” from Economics 101.

pages: 831 words: 98,409

SUPERHUBS: How the Financial Elite and Their Networks Rule Our World
by Sandra Navidi
Published 24 Jan 2017

A Sense of Purpose: Creating Value for Society Subordinates in hierarchical institutions typically adapt to the rules set at the top, and people at the top adapt to the rules of the system while concurrently influencing them. In line with the system’s overall purpose—growth—executives strive for growth, profits, and shareholder value at the expense of everything else, when companies should really benefit all stakeholders of the larger community beyond just shareholders. The purpose of the upper layers of the hierarchy is to serve the purposes of the lower layers, and WEF founder Klaus Schwab thinks that all companies—as both economic and social entities—have a duty to consider the common good.

pages: 368 words: 96,825

Bold: How to Go Big, Create Wealth and Impact the World
by Peter H. Diamandis and Steven Kotler
Published 3 Feb 2015

We’ll take them one at a time. Bezos has never been interested in quick profits or short-term rewards. From the start, Amazon has been playing the long game. In his now-famous 1997 letter to his shareholders,26 Bezos put it this way: “We believe that a fundamental measure of our success will be the shareholder value we create over the long term. . . . Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies.” The letter went on to explain his thinking strategy with a number of now-famous points: • We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions

pages: 411 words: 98,128

Bezonomics: How Amazon Is Changing Our Lives and What the World's Best Companies Are Learning From It
by Brian Dumaine
Published 11 May 2020

Since then, running a business to maximize returns for shareholders has become the modus operandi. Commonly, CEOs today will do whatever it takes—cutting R&D, firing employees, slicing benefits—to make the latest quarterly earnings, because if they don’t deliver, activist investors will find someone who will. Unfortunately, the focus on shareholder value will only get worse as the next generation of powerful corporations, fueled by big data and AI, becomes even more dominant. Yes, shareholders’ interests certainly need to be taken into account, but so must those of the employees and the communities in which corporations operate. The solution offered by many on the left is simple to state but hard to execute: corporations need to pay their employees more, and governments need to pick up the slack when a business can’t economically pay a living wage or create enough jobs to meet the needs of society.

Forward: Notes on the Future of Our Democracy
by Andrew Yang
Published 15 Nov 2021

Whether you are doing a good job is determined in large part by the numbers. If the company is performing well financially and you avoid scandal, you’re likely to be judged a good CEO. If the company has a board of directors or public shareholders, as long as the profit margins are good and there is a sense that you are working to “maximize shareholder value,” then you’re generally left alone. I’ve been the CEO of a private company and still marvel at how direct the lines of accountability were. If I wanted to make a change, I could meet with the people involved and the change would be rolled out within a matter of days or even hours. There was almost no bureaucracy.

pages: 367 words: 97,136

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Published 4 Nov 2020

The professor had just walked the class through a hypothetical example, which highlighted the perverse effects of conventional cost-of- capital analysis to evaluate projects. He added, “Maybe I should invest the firm’s capital in T-bills? Put everything in T-bills?” A lightbulb went off in most students’ heads. To invest the firm’s capital in cash instruments should not maximize shareholder value. Yet based on the model, the net present value of a cash investment would be positive. Clearly, the assumptions on the firm’s cost of capital were wrong. At the time of this discussion, the professor was about to retire, after a remarkable 40-year career. He had built the university’s masters in finance program and published the main textbooks used throughout the undergraduate and graduate programs.

Risk Management in Trading
by Davis Edwards
Published 10 Jul 2014

Credit Risk Credit risk is the loss of money or resources due to a trading partner not repaying a debt or a loan. Litigation Risk Litigation risk is the risk of loss due to lawsuits or arbitration proceedings. Compliance Risk Compliance risk is the risk of losses due to regulatory actions, fines, or sanctions. Reputational Risk Reputational risk is the risk of lost revenue or a decline in shareholder value due to damage to a firm’s reputation. Strategic Risk Strategic risk is the potential outcome of a strategic decision. For example, what happens to a firm’s future prospects if a strategy is successful? It is the risk that a strategy is well executed but still doesn’t result in the desired outcome.

pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society
by Eric Posner and E. Weyl
Published 14 May 2018

Banks, Harvard Business Review (June 13, 2016), https://hbr.org/2016/06/one-big-reason-theres-so-little-competition-among-u-s-banks. 30. Sociologists of business refer to this shift as the “Finance-dominated” or “post-Fordist” business model. See William Lazonick & Mary O’Sullivan, Maximizing Shareholder Value: A New Ideology for Corporate Governance, 29 Economics & Society 13 (2000), for a review of the early history of this move. See also Engelbert Stockhammer, Some Stylized Facts on the Finance-Dominated Accumulation Regime, 12 Competition & Change 184 (2008), for an update. 31. See José Azar, Martin C.

pages: 335 words: 96,002

WEconomy: You Can Find Meaning, Make a Living, and Change the World
by Craig Kielburger , Holly Branson , Marc Kielburger , Sir Richard Branson and Sheryl Sandberg
Published 7 Mar 2018

Social issues of great magnitude can only be solved when government, nonprofits, and the private sector work together. Old-school charities don't have the resources to grow their impact on their own. Governments have only so much tax revenue. As the only sector with enough resources for scalability, business should take the lead. Traditionally, the purpose of business has been to maximize shareholder value at any cost, a mandate that often justified crimes against people and the environment. In the past, people and planet were rarely economic measurements in the success or failure of a business. But when, in some instances, companies are more powerful than governments, business cannot see itself as separate from the health of our world and its people but responsible for it.

pages: 352 words: 96,692

Celebration of Fools: An Inside Look at the Rise and Fall of JCPenney
by Bill Hare
Published 30 May 2004

Chairman, I personally want to tell you, the directors, and other senior managers how very disappointed I am in each of your performances with regard to the leadership and operation of this fine company. Each of you should be ashamed of yourself." His heart was racing and he was having difficulty getting his breath. "All of you have failed in your fiduciary responsibilities to JCPenney shareholders. You have (1) failed to maintain our confidence, (2) failed to maintain shareholder value, (3) failed to communicate to us, (4) failed to properly adjust compensation for poor performance, (5) failed to remove people who have not performed at acceptable levels, and (6) failed to maintain the morale of the associates. But instead, at a time when the market value of our stock has plummeted, and the company has performed so poorly as to become a takeover candidate, the board increased management salaries and gave a new severance package to senior managers and possibly themselves."

pages: 328 words: 96,141

Rocket Billionaires: Elon Musk, Jeff Bezos, and the New Space Race
by Tim Fernholz
Published 20 Mar 2018

Meanwhile, he has suffered political attacks from the right because of his willingness to take advantage of government support for new technologies. Some investors see his companies as boondoggles; one hedge fund operator told me that Musk “has created some of the most brilliant schemes to destroy shareholder value in the history of American finance . . . The [2016 merger between Tesla and SolarCity] makes a farce out of corporate governance.” Many in NASA and the space community—especially among the older crowd that grew up with the Apollo program—see him as, at best, a dilettante. At worst, they consider him someone whose misguided ambitions divert precious funding from “real” space exploration, whose company puts the US space program one tragic accident away from a public relations disaster with every risk it takes.

pages: 329 words: 102,469

Free World: America, Europe, and the Surprising Future of the West
by Timothy Garton Ash
Published 30 Jun 2004

Roughly half its foreign investment is in or from Europe, but another third is in or from the United States.26 Some 3 million British jobs depend on trade with Europe, more than a million on American-owned companies.27 Britain’s version of capitalism is somewhere in between those of continental Western Europe and the United States. The way British industry relies on the stock market to raise capital, with an increasingly frenetic emphasis on “shareholder value,” is more like America, but the way the government redistributes national income through the welfare state is more like France or Germany. Britain has created more new jobs than France but less than America; those jobs are often worse paid and less secure than in France, but there is still not the large underclass of “working poor” that you find in America.

pages: 341 words: 98,954

Owning the Sun
by Alexander Zaitchik
Published 7 Jan 2022

Not to be outdone, Director produced articles targeting the most celebrated, least controversial antitrust suits in the country’s history. These included the 1911 Supreme Court decision that dismembered Standard Oil, a judgment that Director dismissed as without merit and counterproductive. In a 1956 Project article that anticipated later theories about shareholder value, Director and Chicago law school dean Edward Levi argued that corporations benefited the wider economy by practicing exclusionary and anticompetitive behavior. Hayek did not join his colleagues in this sharp ideological turn. He spent 1959, his last year in Chicago, writing a book that contained a forceful restatement of the Austrian School’s traditional opposition to patents and all forms of monopoly.

pages: 337 words: 96,666

Practical Doomsday: A User's Guide to the End of the World
by Michal Zalewski
Published 11 Jan 2022

In this setup, the gains from equity positions are likely to offset inflation; while the diversification of stocks caps the impact of any single company going bankrupt to between 2.5 percent and 5 percent of the value of the doomsday fund. Meanwhile, a major stock market crash that temporarily wipes 40 to 50 percent of shareholder value would have a tolerable 20 to 25 percent impact on your savings. What to do with the rest is open to debate. Real estate can be an option for more affluent or industrious folks. For others, collectibles, metals, or more sophisticated stock market positions are fair game. Finally, around 1 percent can be spent on “doomsday hedges”—equity or futures options—that protect against currency collapses or profound economic slumps that weaken the fundamentals of public companies for years to come.

pages: 343 words: 103,376

The Alternative: How to Build a Just Economy
by Nick Romeo
Published 15 Jan 2024

The British company John Lewis, which in 2021 had nearly $4 billion in revenue and over eight thousand employees, is owned by a trust.26 Its employees have a share in governance and profits—on good years amounting to the equivalent of a few months of extra pay—as well as the chance to enjoy highly subsidized vacations at properties the company owns, including a sixteenth-century castle on a Dorset island.27 The German optics company Zeiss (over $6 billion in revenue and over thirty thousand employees28) and the Danish pharmaceutical company Novo Nordisk ($122 billion in revenue29 and over forty-five thousand employees30) are both owned by foundations with strong financial commitments to supporting initiatives in education, research, and philanthropy. Corporations owned by a foundation versus a trust differ somewhat in structure, but the conceptual core is similar: both enable a company to operate with a long-term legal commitment to clearly specified goals, rather than merely maximizing profits or shareholder value. There’s nothing inherent in the nature of humans or companies that makes contemporary American models of corporate governance and ownership inevitable. More attractive alternatives already exist. Footnote i Some law firms are also helping business owners embrace these new structures.

pages: 944 words: 243,883

Private Empire: ExxonMobil and American Power
by Steve Coll
Published 30 Apr 2012

It was in some respects an accident of American political history—as well as an expression of the enduring power of the largest oil corporations—that electric energy was treated as a public entitlement subject to close regulatory scrutiny, while gasoline was not. Even setting aside all ideological arguments about the costs and benefits of free versus regulated capitalism, the incentives ExxonMobil and its peers followed—Wall Street signals, competitive signals, and obligations under the law to maximize shareholder value—had practical consequences for working- and middle-class families. As Petroleum Intelligence Weekly put it, “What many of the companies have in common is a reluctance to sacrifice high financial returns for stronger output growth.” There were surely many efficiencies in this system, but one of its problems proved to be poor long-term performance and underinvestment by the big companies in oil exploration and production, which contributed to tighter supply and more volatile prices that occasionally socked American consumer budgets unexpectedly.

…

It is also possible that XTO has already drilled the best areas in more mature shale plays, while the potential of newer plays has not yet been established.”25 An unsigned memo carrying similar doubts circulated among retired ExxonMobil executives. “It is a really tough job to figure out if ExxonMobil management is doing a good job of enhancing shareholder value, given the inherent limitations of its already huge size and inevitable momentum,” the memo noted. “Sure, you can make comparisons with competitors (which ExxonMobil has tended to lag in recent years) but given that ExxonMobil is fully a third larger than its nearest competitor, one is dealing with apples and oranges to some extent.”

pages: 471 words: 109,267

The Verdict: Did Labour Change Britain?
by Polly Toynbee and David Walker
Published 6 Oct 2011

Even though real GDP per capita grew faster in the UK than in France or Germany, GDP for each hour worked showed the same gap with France as a generation earlier, in 1979. An old question in UK economic history was one Labour never really answered. Problems of growth and productivity stemmed from the way companies and their managers performed, but what could government do from the outside to improve them? When, after the crash, the dogmas of ‘shareholder value’ crumbled, a Labour view – any view – might have been a reference point in debate. * Labour did both deregulation and intervention, which seemed to reflect business’s own lack of coherence. Typical was Philip Bowman, chief executive of Smiths Group, who in one breath bemoaned ‘red tape’ and excess tax and in the next demanded support for business and, by the way, more state-funded research and development (Financial Times, 25 March 2010).

pages: 398 words: 108,889

The Paypal Wars: Battles With Ebay, the Media, the Mafia, and the Rest of Planet Earth
by Eric M. Jackson
Published 15 Jan 2004

Instead, the secondary offering was designed to let major shareholders sell some of their holdings in June in exchange for having the rest of their holdings locked-up through mid-November, effectively spreading the release of the 53 million shares across three dates instead of one. Though intended to preserve shareholder value, this distribution of lock-up release dates drove the already volatile share price down by 7% on the day of the announcement as investors speculated that management was cashing out of an overvalued stock. In the following two weeks it would continue to tumble before settling near $19 in late June.

pages: 431 words: 107,868

The Great Race: The Global Quest for the Car of the Future
by Levi Tillemann
Published 20 Jan 2015

“In my judgment, [Fukushima] was a natural disaster, but also a human disaster caused by METI and TEPCO,” explained Masahisa Naitoh, a former head of energy policy at METI and now chairman of the Institute of Energy Economics of Japan.8 Soon TEPCO was not only putting out radioactive fires, but battling for its own corporate survival. Cleanup and evacuation efforts sapped its resources. Nuclear energy was the backbone of TEPCO’s generation fleet, as well as its strategic plan for Japan’s low-carbon future. By June, TEPCO’s stock price had tumbled 90 percent and bankruptcy ensued—wiping out $39 billion of shareholder value. Just compensation for victims of the disaster was incalculable and the psychological pressure often unbearable. While testifying before parliament, METI’s chief, Minister of Trade Banri Kaieda, broke into sobs as he was berated by the Liberal Democratic Party opposition for his handling of the affair.

pages: 370 words: 105,085

Joel on Software
by Joel Spolsky
Published 1 Aug 2004

Open source is not exempt from the laws of gravity or economics. We saw this with Eazel, ArsDigita, The Company Formerly Known as VA Linux, and a lot of other attempts. But something is still going on that very few people in the open source world really understand: a lot of very large public companies, with responsibilities to maximize shareholder value, are investing a lot of money in supporting open source software, usually by paying large teams of programmers to work on it. And that's what the principle of complements explains. Once again: Demand for a product increases when the price of its complements decreases. In general, a company's strategic interest is going to be to get the price of their complements as low as possible.

pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile
by Alexander Davidson
Published 1 Apr 2008

Industrial group Hanson, airline British Airways and hotel group Intercontinental are among many that attract speculative bid talk. On days of slow trading, talk about retailer clothing Next as a bid target resurfaces. It is important to note that M&A does not always produce the expected beneﬁts. Sometimes, the integration of two companies can be problematic and not all deals enhance shareholder value, at least in the short term. Disclosure and regulation When acquisitions take place, it is hard to assess their value creation due to signiﬁcant goodwill expenditure, coupled with under-reporting of intangible assets and a general lack of disclosure, according to Intangible Business, a brand valuation consultancy.

pages: 273 words: 34,920

Free Market Missionaries: The Corporate Manipulation of Community Values
by Sharon Beder
Published 30 Sep 2006

It represents a wholesale change in cultural values and aspirations. Despite the rhetoric of corporate accountability and shareholder or consumer democracy, corporations are not democratic organizations. There is no free ﬂow of ideas or open debate about decisions within their hierarchies. The purpose of corporations is to make proﬁts and thereby increase shareholder value, not to serve the public or national interest. This eclipse of democratic values by corporate values is not a natural evolution but the consequence of a deliberate strategy employed by corporate executives who have combined their ﬁnancial and political resources to spread free market ideology.

pages: 407 words: 109,653

Top Dog: The Science of Winning and Losing
by Po Bronson and Ashley Merryman
Published 19 Feb 2013

And that Wall Street, which prides itself on being the greatest financial market, is actually an inefficient labor market, because it’s going in the wrong direction? Dr. Alok Kumar, from the University of Texas’s McCombs School of Business, became interested in gender and financial projections when he read studies on whether women CFOs were better than male CFOs at maximizing shareholder value. They were, but the dataset was not large enough to be truly conclusive. In search of a larger dataset, he went to the Thomson Reuters’ Institutional Brokers Estimate System (I/B/E/S). This had every financial earnings projection made by every Wall Street stock analyst from May of 1983 to June of 2006—a total of 2,856,198 forecasts issued by 18,292 analysts who covered 21,107 stocks.

pages: 335 words: 107,779

Some Remarks
by Neal Stephenson
Published 6 Aug 2012

At a ceremony opening a new KDD-SCS factory on Ky¯ush¯u executives from KDD and IDC met to discuss the idea. IDC agreed to let KDD in, in exchange for what people on both sides agree were surprisingly reasonable conditions. At first blush it might seem as though IDC was guilty of valuing harmony and cooperation over the preservation of shareholder value—a common charge leveled against Japanese corporations by grasping and peevish American investors. Perhaps there was some element of this, but the fact is that IDC did have good reasons for wanting FLAG connected to KDD’s network. KDD’s Ninomiya station is scheduled to be the landing site for TPC–5, a megaproject of the same order of magnitude as FLAG: 25,000 kilometers of third-generation optical fiber cable swinging in a vast loop around the Pacific, connecting Japan with the West Coast of the U.S.

pages: 338 words: 104,684

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy
by Stephanie Kelton
Published 8 Jun 2020

As long as most developing countries have to import basic necessities, they will remain “developing”—caught in a desperate scramble to acquire the currencies of the rich world. Corporations around the world will keep feverishly chasing short-term profits, extracting scarce natural resources, polluting precious ecosystems, and ruthlessly firing desperate people, all in the name of maximizing shareholder value. Left unchecked, the situation is an open invitation for demagogues like Trump to come along, blaming “foreigners” and exacerbating tensions among the world’s people. In addition to South-South trade agreements, developing countries need to return to regulating financial transactions across borders.

pages: 421 words: 110,272

Deaths of Despair and the Future of Capitalism
by Anne Case and Angus Deaton
Published 17 Mar 2020

The majority view today is that the board’s sole obligation is to the shareholders, but there are other interpretations, including that the board is responsible to the corporation itself, or to a wider range of stakeholders, including consumers and employees. States also have jurisdiction, and what they do varies from state to state—for example, California requires that boards have at least one female member. In spite of increased recent questioning, maximization of shareholder value has become the norm in recent years. Of course, shareholders do not directly manage firms, but managers have been increasingly incentivized to act in the shareholders’ interest by being paid in stock and stock options, so that their own fortunes become more aligned with the market valuation of the firm.

pages: 406 words: 105,602

The Startup Way: Making Entrepreneurship a Fundamental Discipline of Every Enterprise
by Eric Ries
Published 15 Mar 2017

All of these activities share the same problem: They work only in the short term. In companies that have grown a sufficiently large and productive “forest” over years or decades, there’s an awful lot of firewood to be cut down before the damage becomes evident. This is the inevitable result of treating companies as if their obligation to maximize shareholder value means maximizing quarterly returns. As I discussed in The Lean Startup, these kinds of bad incentives trickle down from the public markets and infect everything that public companies touch, including the environment, politics, public safety, and, of particular concern to me, the whole entrepreneurial ecosystem.

pages: 419 words: 109,241

A World Without Work: Technology, Automation, and How We Should Respond
by Daniel Susskind
Published 14 Jan 2020

Connie Chan, “When One App Rules Them All: The Case of WeChat and Mobile in China,” Andreessen Horowitz, https://a16z.com/2015/08/06/wechat-china-mobile-first/, quoted in J. Susskind, Future Politics, p. 331. 7. Dan Frommer, “Microsoft Is Smart to Prepare for Its New Role as Underdog,” Quartz, 17 July 2014. 8. James Klisner, “IBM: Creating Shareholder Value with AI? Not So Elementary, My Dear Watson,” Jefferies Franchise Note, 12 July 2017. See https://javatar.bluematrix.com/pdf/fO5xcWjc. 9. Avery Hartmans, “These 18 Incredible Products Didn’t Exist 10 Years Ago,” Business Insider UK, 16 July 2017. 10. Andre Esteva, Brett Kuprel, Roberto A.

pages: 362 words: 108,359

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street
by Jonathan A. Knee
Published 31 Jul 2006

As all of these empire builders learned the hard way, the ban on slavery places significant constraints on the ability to keep the critical business assets in place once a deal for a “people” business closes. In just about every case, the shareholders of the acquirer paid the price as the newly enriched employees of the target cashed their checks and sold themselves off to the highest bidder. For pure shareholder value destruction as a percentage of purchase price, it took Bruce Wasserstein to top what DLJ wrought on CSFB just a month later. Having already lost Joe Perella to Morgan Stanley in 1993 and many of the other most productive bankers in his firm the following year, he pulled off the deal of his career by selling the carcass of Wasserstein Perella to Dresdner Bank for $1.37 billion in 2000.

pages: 382 words: 107,150

We Are All Fast-Food Workers Now: The Global Uprising Against Poverty Wages
by Annelise Orleck
Published 27 Feb 2018

They spoke with a ragged eloquence that sometimes even broke through the cynicism of jaded reporters. Or maybe their tales resonated because most of us already understood. Almost everyone, everywhere, was being screwed—one way or another—by the twenty-first-century economy and by the widespread belief that increasing shareholder value is more important than any other collective human endeavor. Scholarly tomes on the subject became surprisingly popular. Economists probed the sources of unequal wealth distribution. Historians and geographers argued that galloping capitalism had become the “new imperialism,” that Exxon, Walmart, and McDonald’s were the global empires of our age.

pages: 460 words: 107,454

Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet
by Klaus Schwab
Published 7 Jan 2021

When the truth came out in 2001, the company had no option but to declare bankruptcy. The smoke and mirrors they had put up for 15 years turned out to be an empty box. Several of the company's top managers, including its CEO and CFO, were convicted of fraud.42 Their singular focus on generating profits and improving shareholder value had ultimately led to the opposite. Investors were defrauded, and the company was worth only a fraction of its peak valuation. There is however a moral to the Enron story. When the Chapter 11 bankruptcy procedure was completed, it turned out there was still a valuable part to its business left: InterNorth, one of the two original natural gas companies that had formed Enron.

pages: 460 words: 107,454

Stakeholder Capitalism: A Global Economy That Works for Progress, People and Planet
by Klaus Schwab and Peter Vanham
Published 27 Jan 2021

pages: 368 words: 102,379

Pandemic, Inc.: Chasing the Capitalists and Thieves Who Got Rich While We Got Sick
by J. David McSwane
Published 11 Apr 2022

Instead, the Company Is Selling Versions of It Overseas,” ProPublica, March 30, 2020, https://www.propublica.org/article/taxpayers-paid-millions-to-design-a-low-cost-ventilator-for-a-pandemic-instead-the-company-is-selling-versions-of-it-overseas-. The small company the government hired William Lazonick and Matt Hopkins, “How ‘Maximizing Shareholder Value’ Minimized the Strategic National Stockpile: The $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco,” Institute for New Economic Thinking, Working Paper Series, 2020, 1–64, https://doi.org/10.36687/inetwp127. issued the first of nearly $40 billion Moiz Syed and Derek Willis, “Coronavirus Contracts: Tracking Federal Purchases to Fight the Coronavirus,” ProPublica, May 27, 2020, https://projects.propublica.org/coronavirus-contracts/.

pages: 371 words: 107,141

You've Been Played: How Corporations, Governments, and Schools Use Games to Control Us All
by Adrian Hon
Published 14 Sep 2022

We gave them plenty of breaks and we paid the London Living Wage, an unofficial standard that’s significantly higher than the shamefully low national minimum wage. I personally assembled thousands of packs myself, and yes, it’s boring. But I’d rather pay people well, treat them humanely, and give them good working conditions than work them to the brink of exhaustion while pretending they’re having fun. In doing this, I wasn’t maximising my company shareholders’ value. Since I owned most of those shares, I got to make that choice. But my behaviour runs against the traditional understanding of the purpose of a corporation, at least in the English-speaking world: that is, “a business corporation is organized and carried on primarily for the profit of the stockholders,” as the 1919 ruling in Dodge v.

pages: 404 words: 106,233

Our Lives in Their Portfolios: Why Asset Managers Own the World
by Brett Chistophers
Published 25 Apr 2023

In running their businesses, executives of property companies, energy companies and parking companies are required to consider all manner of different sets of stakeholders, from local communities to employees, from customers to shareholders. Even with the privileging of the fourth of these groups in the contemporary era of the elevation of ‘shareholder value’, corporate executives repeatedly pledge their attentiveness to the interests of the other three groups, making for a messy mix of strategic priorities. Asset managers are more single-minded. Their job is to make money for those whose capital they manage, period. Indeed, Blackstone’s Schwarzman raised hackles when, in 2015, eight years after the company’s IPO, he insisted that the firm bore a fiduciary responsibility only to its limited partners (that is, investors in its funds) and not also to its shareholders (that is, investors in the firm’s own equity capital).5 In the case of asset management, Schwarzman was saying, there is a pure and unencumbered alignment of interests between manager and ‘managee’.

pages: 1,042 words: 266,547

Security Analysis
by Benjamin Graham and David Dodd
Published 1 Jan 1962

If you invest in a company such as Leucadia or Berkshire Hathaway, you are banking on management’s ability to identify investments with high free cash flow. Leucadia and Berkshire Hathaway point to another important aspect of evaluating free cash flow: how management deploys cash and whether those decisions enhance shareholder value. As mentioned earlier, free cash flow can either be returned to shareholders via dividends or share repurchases, or it can be reinvested in the business. Graham and Dodd equated cash returns to shareholders with dividends. The tax advantages of stock buybacks were hardly considered in capital allocation decisions, and in fact, they are of little interest to the institutional investors who dominate today’s markets.

…

Numerous efforts notwithstanding, it was years before I met the CEO, even though my clients then held nearly 16% of the shares outstanding. While such inaccessibility discouraged many investors, I appreciated management’s practice of focusing on the company’s operating prospects and letting results speak for themselves. As I saw no evidence of self-dealing over the years, I was comfortable with management’s success at building shareholder value. Best of all, the very difficulty that caused the stock to be undervalued when I first learned of it caused it to remain undervalued over time. I was delighted with the chance to continue to add to holdings at market prices below intrinsic value. By the time Weetabix’s shares were acquired in 2003, my original investment had increased tenfold.

pages: 424 words: 115,035

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

, Frankfurter Allgemeine Sonntagzeitung, 27 December 2015, faz.net, last accessed 1 January 2016.) 63To sample a flavour of the hype around the term, as well as of the real-world condition to which its ascent responds, here is an extract from the Wikipedia article, ‘Resilience (organizational)’, en.wikipedia.org/wiki/Resilience_(organizational), last accessed 1 January 2016: ‘In recent years, a new consensus of the concept of resilience emerged as a practical response to the decreasing lifespan of organisations and the [sic] from key stakeholders, including boards, governments, regulators, shareholders, staff, suppliers and customers to effectively address the issues of security, preparedness, risk, and survivability. 1.Being resilient is a proactive and determined attitude to remain a thriving enterprise (country, region, organization or company) despite the anticipated and unanticipated challenges that will emerge; 2.Resilience moves beyond a defensive security and protection posture and applies the entity’s inherent strength to withstand crisis and deflect attacks of any nature; 3.Resilience is the empowerment of being aware of your situation, your risks, vulnerabilities and current capabilities to deal with them, and being able to make informed tactical and strategic decisions; and, 4.Resilience is an objectively measurable competitive differentiator (i.e., more secure, increased stakeholder and shareholder value). […] Prominent members in the United States Congress are embracing resilience. The Chairman of the Homeland Security Committee of the U.S. House of Representatives, Bennie Thompson (D-MS) declared May 2008 “Resilience Month” as the committee and its subcommittees held a series of hearings to examine the issue.

pages: 289 words: 113,211

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber
Published 5 Apr 2007

When providing for safeguards against market failures, it may be dangerous to assume that institutions behave rationally. In a rational institution, a company’s objectives are in line with those of the shareholders: that 239 ccc_demon_207-242_ch10.qxd 2/13/07 A DEMON 1:47 PM OF Page 240 OUR OWN DESIGN those in the organization seek to maximize the shareholders’ value, that the regulatory institutions follow their mandates to acquire relevant information for monitoring the financial institutions, and that all the members of these organizations focus in unison to execute the public trust. It is hard to recite this image of the rational institution without breaking into a smile.

pages: 377 words: 115,122

Quiet: The Power of Introverts in a World That Can't Stop Talking
by Susan Cain
Published 24 Jan 2012

Behavioral economists have long observed that executives buying companies can get so excited about beating out their competitors that they ignore signs that they’re overpaying. This happens so frequently that it has a name: “deal fever,” followed by “the winner’s curse.” The AOL–Time Warner merger, which wiped out $200 billion of Time Warner shareholder value, is a classic example. There were plenty of warnings that AOL’s stock, which was the currency for the merger, was wildly overvalued, yet Time Warner’s directors approved the deal unanimously. “I did it with as much or more excitement and enthusiasm as I did when I first made love some forty-two years ago,” exclaimed Ted Turner, one of those directors and the largest individual shareholder in the company.

pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
by Kevin Phillips
Published 31 Mar 2008

Under the new Internal Revenue provisions of the 1980s, debt seemed rational from a tax standpoint, rather than immoral or indulgent. That same decade saw corporate raiders posture as outsiders tackling a bloated “corpocracy,” as promoters of the ability of the small to challenge the big, and as standard-bearers of “a democratization of capital” that unlocked “shareholder value.” Business school realpolitik was more appealing to the public when rephrased to emphasize commitment to shareholders. That being said, in each of the three decades, the most important effect of mergers, acquisitions, and reorganizations was to goose the stock indexes and increase fees and profits.

pages: 412 words: 113,782

Business Lessons From a Radical Industrialist
by Ray C. Anderson
Published 28 Mar 2011

How does it become a leader in transforming society? The old, flawed view of reality holds to the belief that business exists to make a profit, when we know in our hearts that business makes a profit to exist, and it must surely exist for some higher purpose. What CEO really expects to stand before her or his Maker someday and talk about shareholder value? Or market share? Or the clever manipulation of a gullible public? A sustainable society will realize that done right, the triple bottom line of corporate social responsibility—economy, environment, social equity—can come together under the banner of authenticity to create a truly superior, totally ethical, financial bottom line—a better way to bigger and more legitimate profits, a better business model.

pages: 380 words: 118,675

The Everything Store: Jeff Bezos and the Age of Amazon
by Brad Stone
Published 14 Oct 2013

The letter also stated that the company would make decisions based on long-term prospects of boosting free cash flow and growing market share rather than on short-term profitability, and one section in particular served as a guidepost for the unorthodox way the company planned to approach Wall Street. We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

pages: 349 words: 112,333

The Mark Inside: A Perfect Swindle, a Cunning Revenge, and a Small History of the Big Con
by Amy Reading
Published 6 Mar 2012

The losses rippled out from there. Livingston, of course, declared bankruptcy, as did Macomb and about twenty-three other speculators. Soon the effects of Duer’s overreach spread beyond New York’s financial elite to the rest of the market. Real estate prices dropped, credit seized up, and about $5 million in shareholder value simply evaporated. Thomas Jefferson, for one, felt delicious vindication that the speculators had finally gotten their just due. He was confident that now people would return to “plain unsophisticated common sense.” Madison, too, believed the crash to be gratifyingly fatal: “The gambling system … is beginning to exhibit its explosions.”

pages: 423 words: 118,002

The Boom: How Fracking Ignited the American Energy Revolution and Changed the World
by Russell Gold
Published 7 Apr 2014

I sacrificed five hundred million dollars that I lost last fall as a result, not because of bad decisions but because of things beyond my control in this country’s economy and with regards specifically to natural gas prices. So, I’m sorry that you find me as egocentric and greedy. But, I’ll tell you there’s not a harder-working guy out there who thinks every day about how to create shareholder value,” he replied. After a couple more shareholders praised Chesapeake, the final member of the audience spoke. “Hi. My name is Ralph Eads. I’m a longtime shareholder of the company. Virtually everybody in my family owns the stock. It’s been, for like some of the other folks here, transformative for me.

pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist
by Kate Raworth
Published 22 Mar 2017

But even when businesses operate within the law they can, in many countries, hire workers on insecure, zero-hour contracts, while paying a legal minimum wage that leaves them living below the poverty line.46 Ensuring workers’ rights to organise and bargain collectively is one way of offsetting such deep power imbalances: another is to change the ownership structure of the firm itself, ending the centuries-old divide between workers and owners, as Chapter 5 explores. What’s more, Friedman’s narrow view on the business of business has lost credibility: in the face of twenty-first-century challenges, firms need a purpose far more inspiring than merely maximising shareholder value and, as Chapter 6 illustrates, a growing number of enterprises are finding ways to give themselves one. TRADE, which is double-edged – so make it fair The Embedded Economy diagram could be used to depict a single nation’s economy, but it can likewise portray the global economy, and so includes international trade.

pages: 409 words: 112,055

The Fifth Domain: Defending Our Country, Our Companies, and Ourselves in the Age of Cyber Threats
by Richard A. Clarke and Robert K. Knake
Published 15 Jul 2019

Now the CEO of the venture-backed cybersecurity start-up IronNet, he works in a suburban office park not far from Fort Meade. The company’s motto is “The mission continues.” General Alexander is not the only person at the company to come out of the U.S. intelligence community, and it is clear that he still thinks about cybersecurity questions in terms of U.S. national security and not shareholder value (likely to the chagrin of his VC backers). “I flipped through this before you arrived,” he told us, dropping a pocket copy of the Constitution on the table. “It still says that the purpose of the Union is to provide for the common defense. There is no parenthetical that says ‘except in cyberspace.’”

pages: 381 words: 112,674

eBoys
by Randall E. Stross
Published 30 Oct 2008

He instead focused on the numbers: a $30-billion-market-cap business; Goldman Sachs would own 75 percent of it, which would mean a boost of $22.5 billion to the parent investor’s market cap. Yes, the CEO would own 10 percent of the new company, and consequently have a net worth twice that of the wealthiest partner. But you would have added that $22.5 billion in shareholder value. Yes, yes, Paulson said, but he reiterated his concern that the assets on the other side of the fence, that is, the Goldman Sachs partners stuck on the Old Economy side, would deteriorate in value as envy set in. Dunlevie, who had been a Goldman Sachs investment banker once himself, had no way of demonstrating that Paulson’s fear was unfounded.

pages: 451 words: 115,720

Green Tyranny: Exposing the Totalitarian Roots of the Climate Industrial Complex
by Rupert Darwall
Published 2 Oct 2017

When markets destroy older businesses, it’s because newer ones come along offering customers newer and better products and lower prices. By contrast, the Energiewende value destruction was entirely driven by the state. Its scale was immense. In the seven years from December 2007, the three quoted utility companies saw €68.9 billion of shareholder value destroyed. This wasn’t because households were paying lower electricity bills. Assuming Germany’s 40 million households consumed an average 3,500 kWh a year, the total amount they paid for electricity increased from €27.2 billion in 2006 to €40.3 billion in 2015—a near 50 percent rise in nine years.31 Indeed, the value loss to customers is a multiple of that inflicted on investors.

pages: 316 words: 117,228

The Code of Capital: How the Law Creates Wealth and Inequality
by Katharina Pistor
Published 27 May 2019

I will show that it can be and is used not just to optimize the allocation of risks and returns in the production of goods and services; instead, it can be turned into a capital minting operation by employing the ability to partition assets and shield them behind a chain of corporate veils to access low-cost debt finance, and to engage in tax and regulatory arbitrage. Separating the use of corporate law for organizing a business from its capital-minting function is not always easy, and one function frequently morphs into the other, but ignoring the power of corporate law as a capital mint risks missing a major source of private wealth in our age of shareholder value maximization. To illustrate this, I will conduct an “institutional autopsy” of Lehman Brothers.3 Its failure turned a lingering crisis in global financial markets into a full-blown heart attack; but it also offers a great opportunity to dissect the company’s legal structure and understand how that may have contributed to its rise and ultimate fall.

pages: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens
by Nicholas Shaxson
Published 11 Apr 2011

Tax is the missing element in the corporate social responsibility debate. Modern company directors face a dilemma. To whom are they answerable—to shareholders only or to a wider set of stakeholders? There are no useful guidelines.54 Irresponsible players treat tax as a cost to be minimized, to boost short-term shareholder value alone. Ethical directors recognize that tax is not a cost of production but a distribution out of profits to stakeholders, ranking on the profit and loss account alongside dividends. It is a distribution to society, and it pays for the things like roads and education that help the corporations make their profits.

pages: 403 words: 119,206

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

The average shareholder was almost entirely at the mercy of management, deprived of reliable information and unprotected by any real regulatory authority. All too often the men who controlled the new industrial corporations at the turn of the century made use of their positions to manipulate the stock of their companies for their own benefit, not to enhance shareholder value. One particularly egregious example occurred in April 1900 and involved a man who would be a key player in the U.S. Steel transaction, John “Bet a Million” Gates. Gates was regarded by friends as a “good character,” but he could be ruthless in dealing with adversaries. Frederick Lewis Allen described him as “the sort of man who will sit up all night at a friend’s bedside and then destroy the man financially the next day.”14 As his nickname Bet a Million implies, Gates was an inveterate gambler.

pages: 401 words: 115,959

Philanthrocapitalism
by Matthew Bishop , Michael Green and Bill Clinton
Published 29 Sep 2008

WHAT IS BEYOND dispute is that there is a long history of social engagement by companies, and that when companies ignore the big issues of society, they can live to regret it. Today’s growing interest by big companies in philanthropic activities reflects a rediscovery of a historic tradition that was lost, not least, in the 1980s and 1990s, when the focus was too often on maximizing short-term shareholder value. Much of the pioneering early corporate philanthropy took place in Europe, long before it reached America, and was directed by companies towards their own employees, through a mixture of idealism and the self-interested belief that better-looked-after workers would be more productive. A nineteenth-century Yorkshire textile magnate, Titus Salt, one of the first industrialist-philanthropists, donated the hospital, almshouses, institute, bathhouses, and churches that became the town of Saltaire, essentially creating a public-services sector for a population that had none.

pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream
by Nicholas Lemann
Published 9 Sep 2019

Landmark, and est before it, used a whole library of specialized phrases Erhard had invented: rackets, walls of bricks, cause in the matter, on the court, occurring, being a stand, getting complete, life sentences, and many more. Any paradigm shift, Jensen thought, had to create its own conversational domain. That was what financial economics had done; terms like “shareholder value” and “free cash flow,” which hadn’t existed back in Adolf Berle’s heyday, led people trained to use them to think about finance in a certain way. Now, if the world was to change again, a new conversational domain for business and finance had to be invented, with integrity as its centerpiece.

pages: 395 words: 110,994

The Phoenix Project: A Novel About IT, DevOps, and Helping Your Business Win
by Gene Kim , Kevin Behr and George Spafford
Published 14 Jul 2013

He continues, “This is going to take a while to explain. You were everyone’s unanimous choice to become CIO. But to be brutally candid, I don’t want you there.” Reacting to my obvious distress, he says, “Hey, relax. Let me explain. My board holds me responsible for making the best use of company resources to achieve the goals that maximize shareholder value. My primary job is to lead my management team to make that happen.” He stands up, walking over to the window, looking out at the snow-covered yard. “You’ve helped me see that IT is not merely a department. Instead, it’s pervasive, like electricity. It’s a skill, like being able to read or do math.

pages: 387 words: 119,244

Making It Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy
by Iain Martin
Published 11 Sep 2013

There were ‘lurid rumours going about’ on what RBS might do next in terms of expansion, he said, and he wanted to ‘close that industry down’. Watt, rather unwisely, asked Eden to define the term ‘management discount’. ‘Well,’ came back the answer, ‘I think there’s a perception among some investors that Fred Goodwin is a megalomaniac who pursues size over shareholder value.’ Unused to direct public criticism, Goodwin sounded stung. ‘I think I remember reading that even in your own note, James, so it’s not the first time I’ve heard that and I’m sure there are people who think that, if only because you wrote it. So last year it was one person who thinks it. I really don’t think it stands a lot of scrutiny.’

pages: 389 words: 111,372

Raising Lazarus: Hope, Justice, and the Future of America’s Overdose Crisis
by Beth Macy
Published 15 Aug 2022

Barber was among dozens of top DEA officials who left the agency to work for the better-paying companies they had once regulated—not unlike the FDA’s Curtis Wright, who approved OxyContin before landing at Purdue. So-called suspicious orders were supposed to be red flags, but policing such orders was now handled by a kind of honor system, left to corporations that had given up honor in favor of enhanced shareholder value long ago. As Eyre predicted in an op-ed: “AmerisourceBergen will deny wrongdoing. Lawyers will scoop up a third of the cash. Politicians will steer the bulk of the money to fill budget holes wrought by the coronavirus shutdown. Only a small percentage, I fear, will be allocated to help West Virginians get through opioid-use-disorder treatment, which can take three to five years.”

pages: 410 words: 115,666

American Foundations: An Investigative History
by Mark Dowie
Published 3 Oct 2009

Indeed, research compiled by the Council of Institutional Investors demonstrates that stockholder resolutions demanding more accountable governance actually enhance the target company's stock over time. Thoughtful shareholder advocacy, as opposed to the fast-buck interventions of a Michael Price (see "Managing the Money Managers") builds long-term shareholder value. Despite its rarity in the philanthropic world, shareholder activism has become common practice among huge, bottom line-oriented institutional investors like CALPERS and other state employee retirement plans, although they are still more likely to petition over matters of corporate governance than social issues.

pages: 353 words: 355

The Long Boom: A Vision for the Coming Age of Prosperity
by Peter Schwartz , Peter Leyden and Joel Hyatt
Published 18 Oct 2000

For example, PREfACE xi the hyper-accelerated growth and dramatic fall of some Internet stocks in the last year is very typical of the creation of new industries, where many innovative new businesses are formed only to eventually consolidate with others or die. We've seen it before in other new industries, like the auto industry in the first half of the twentieth century, when hundreds of new auto companies evolved to less than a half dozen companies, which then entered a period of huge increases in shareholder value. In fact, the spring shakeout of some Internet companies and the correction in the valuations of others is actually good for the Long Boom. This forces people to analyze their investments more on the solid fundamentals and gets investors thinking more long-term. For the economy as a whole, not to mention for the society as a whole, it's better when investors realize steady profits over five years rather than spectacular profits in five weeks.

pages: 394 words: 124,743

Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry
by Steven Rattner
Published 19 Sep 2010

Its people were so used to losing, to watching market share erode and seeing their vehicles outclassed and outsold, that mediocrity became a self-fulfilling prophecy. Harry was fond of a Vince Lombardi quote: "Winning is a habit. Unfortunately, so is losing." Changing GM's psychology became a key goal for the team. Typical of the cultural challenge was a lack of focus on shareholder value. In all our time interacting with GM executives, we never heard any of them utter that all-important term. Chatting after one lengthy session on the thirty-seventh floor, Troy Clarke told Harry that earlier that day, Ray Young had given the senior leadership a quick tutorial on equity value and "total enterprise value."

pages: 410 words: 119,823

Radical Technologies: The Design of Everyday Life
by Adam Greenfield
Published 29 May 2017

Like McDonald’s CEO Steve Easterbrook, some executives insist that bringing service-sector automation on line won’t eliminate jobs, but merely allow them to deploy their employees in more “value-added” roles.26 Former McDonald’s head of US operations Ed Rensi argues just the opposite; as part of a campaign against efforts to increase the US minimum wage to $15 an hour, he noted that “it’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient, making $15 an hour bagging french fries.”27 Whichever of these two perspectives does prevail—and the pitiless logic of shareholder value strongly bolsters Rensi’s position—it is clear that whatever human participants do remain in the waged labor force are in for a particularly rough ride in the years to come. This shrunken workforce will be asked to do more, for lower wages, at a yet higher pace. Amazon is again the leading indicator here.28 Its warehouse workers are hired on fixed, short-term contracts, through a deniable outsourcing agency, and precluded from raises, benefits, opportunities for advancement or the meaningful prospect of permanent employment.

pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

In any event, investors seeking shelter from inflation need to look beyond holdings of marketable equities. Alignment of Interests Stocks exhibit a number of characteristics that tend to serve investor goals. The general alignment of interests between corporate managers and shareholders bodes well for stock investors. In most instances, company executives benefit from enhancing shareholder value, serving the financial aspirations of management and investor alike. For example, corporate managers often share in gains associated with greater corporate profitability, indirectly through increased compensation and directly through increased values for personal shareholdings. Unfortunately, the separation of ownership (by shareholders) and control (by management) in publicly traded companies introduces agency problems that occur when managements (the agents) benefit at shareholders’ (the principals’) expense.

pages: 387 words: 119,409

Work Rules!: Insights From Inside Google That Will Transform How You Live and Lead
by Laszlo Bock
Published 31 Mar 2015

Against this backdrop, Ellen’s actions are less surprising. After all, hadn’t she worked hard and sacrificed to earn that senior executive title? Surely she was so busy that if her secretary could save her even fifteen minutes, it would be worthwhile for GE, as Ellen could channel that precious time into creating more shareholder value? And if it spilled from a professional need to a personal one, well, Ellen frequently did GE’s work on her personal time. Helping her personally wasn’t that different from helping her professionally, right? Wrong. Managers aren’t bad people. But each of us is susceptible to the conveniences and small thrills of power.

pages: 413 words: 119,587

Machines of Loving Grace: The Quest for Common Ground Between Humans and Robots
by John Markoff
Published 24 Aug 2015

Google’s executives have obviously thought to some degree about the societal consequences of the systems they are creating. Their corporate motto remains “Don’t be evil.” Of course, that is nebulous enough to be construed to mean almost anything. Yet it does suggest that as a company Google is concerned with more than simply maximizing shareholder value. For example, Peter Norvig, a veteran AI scientist who has been director of research at Google since 2001, points to partnerships between human and computer as the way out of the conundrum presented by the emergence of increasingly intelligent machines. A partnership between human chess experts and a chess-playing computer program can outplay even the best AI chess program, he notes.

pages: 413 words: 117,782

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences
by Steven G. Mandis
Published 9 Sep 2013

She describes how a highly unstable market system (e.g. job insecurity, constant downsizing, continual restructuring) is understood and justified through the experiences and practices of restructuring corporations. Bankers are recruited from “elite universities” and are socialized into a short-term world of high reward. The workplace culture and network of privilege create the perception that job insecurity results in better performance. The banker’s mantra is improving “shareholder value,” but the assumptions and practices often produce crises. She finds that in many ways the investment bankers and their approaches become an example of how their clients should behave. She believes Wall Street shapes not only the stock market but also how both companies and employees value each other.

pages: 388 words: 125,472

The Establishment: And How They Get Away With It
by Owen Jones
Published 3 Sep 2014

In 2014 four of the employees pleaded guilty to the charges. And yet no matter how much public money it splashed on share dividends, no matter how bad its performance, no matter how serious the allegations against it, A4e remained a government client. ‘These are private companies, they exist to make money, that’s their whole raison d’être, shareholder value,’ says former A4e contractor Jane Walker. ‘But this is all money coming from the state, and what are they doing for the money? It doesn’t matter how bad they are, how below target they are, they still get the next contract.’ State support to private companies does not just come in the form of money.

pages: 320 words: 87,853

The Black Box Society: The Secret Algorithms That Control Money and Information
by Frank Pasquale
Published 17 Nov 2014

Instead of using surveillance technology against American citizens, the government could deploy it on our behalf, to monitor and contain corporate greed and waste. Public options in technology and finance would make our social world both fairer and more comprehensible. Rather than contort ourselves to fit “an impersonal economy lacking a truly human purpose,” we might ask how institutions could be reshaped to meet higher ends than shareholder value.98 Admittedly, demands for dignity, due process, and social justice are controversial; there will always be holders of vested privilege who prefer not to share. Nevertheless, it is time for us as citizens to demand that important decisions about our financial and communication infrastructures be made intelligible, soon, to independent reviewers—and that, over the years and the decades to come, they be made part of a public record available to us all.

pages: 482 words: 125,973

Competition Demystified
by Bruce C. Greenwald
Published 31 Aug 2016

Except for a brief period in the mid 1980s, before it quit the memory chip business, Intel’s average returns on capital have exceeded 30 percent after tax. The ratio of its market value to the estimated replacement cost of its net assets has continually exceeded 3 to 1; each dollar invested by Intel has created three or more dollars in shareholder value. The absence of successful entry and Intel’s continued dominance in the CPU chip market is clearly a sign of a strong incumbent competitive advantage. The sources of Intel’s advantage—captive customers, economies of scale, and some patent protection—are clear; we discussed them in chapters 2 and 3.

pages: 540 words: 119,731

Samsung Rising: The Inside Story of the South Korean Giant That Set Out to Beat Apple and Conquer Tech
by Geoffrey Cain
Published 15 Mar 2020

By November of 2016, more than a year after the vote, the National Pension Service had suffered $500 million in losses. On paper, Jay Lee remained vice chairman, since in Korea’s Confucian tradition he couldn’t become chairman while his father was still alive. That would be an affront to the supreme leader. But as the victor, Jay raised his shareholding value and moved a major step closer to the throne. The nosy New York interlopers were held at bay, for now. But the battle for the Republic of Samsung was not over. “My observation on Samsung, is that Samsung is pretty unique and a very excellent dynasty,” said the former chief of the National Pension Service, a crusty and passionate pro-chaebol conservative named Choi Kwang, who told me the story of the merger vote over dinner almost two years later.

pages: 314 words: 122,534

The Missing Billionaires: A Guide to Better Financial Decisions
by Victor Haghani and James White
Published 27 Aug 2023

However, in the long run, recognizing the highly competitive nature of the global marketplace, we wonder if either of these claims can hold. We suspect that ESG investors will have little real and lasting impact on corporate behavior and will suffer subpar Risk‐adjusted Returns due to less diversification and higher fees. Indeed, a 2022 study by Bradford Cornell of UCLA and Aswath Damodaran of NYU reviewed shareholder value created by firms with high and low ESG ratings—scores provided by professional rating agencies. Their conclusion: “Telling firms that being socially responsible will deliver higher growth, profits, and value is false advertising.”19 Individual Stocks Assessing the expected return and risk of individual companies is at best very difficult and in some cases probably impossible.

The Powerful and the Damned: Private Diaries in Turbulent Times
by Lionel Barber
Published 5 Nov 2020

In the 21st century, the west should not be tempted by Xi’s model of illiberal democracy and the unassailable authority of the communist party; but it has much to learn from Asia in general. The fourth development involves a reform of capitalism, the engine of wealth creation intrinsic to the survival of liberal democracy. Well before the pandemic struck, the calls for a new social compact were growing. Rather than focusing exclusively on shareholder value, company boards were under pressure to consider other factors such as climate change, diversity and human capital. Boards were obliged to find ways to reduce the gross inequalities which had arisen under the old system. In the new system, as governments seek to pay down their colossal debts, the pressure to redress the balance, through higher taxes, will prove irresistible.

pages: 1,073 words: 314,528

Strategy: A History
by Lawrence Freedman
Published 31 Oct 2013

In 2005, Sumantra Ghoshal observed: Combine agency theory with transaction costs economics, add in standard versions of game theory and negotiations analysis, and the picture of the manager that emerges is one that is now very familiar in practice: the ruthlessly hard-driving, strictly top-down, command-and control focused, shareholder-value-obsessed, win-at-any-cost business leader.14 During the 1990s, theories were developed for this new breed of manager, promising success that could be measured in profit margins, market share, and stock prices. They reinforced the challenge to the idea of manager as the secure and steady, but essentially gray, bureaucrat who knew his place in the large corporation, which in turn knew its place in the larger economy.

…

It acquired an unrealistically elevated status as the ingredient that could make all the difference between success and failure. Master strategists with master strategies were regularly identified to be admired and emulated: “captains of industry” keeping their organizations stable and set on a steady course; financial wizards taking aggressive action against all inefficiencies and so extracting the last ounce of shareholder value from a business; hard competitors scouring the marketplace for the most advantageous position; soft revolutionaries recognizing the creative potential of a committed workforce; innovative designers transforming a market with a truly unique product. Management theorists and gurus promoted their own preferred heroes.

pages: 493 words: 139,845

Women Leaders at Work: Untold Tales of Women Achieving Their Ambitions
by Elizabeth Ghaffari
Published 5 Dec 2011

Also, I think it would be fascinating to start applying all of the governance knowledge that I've acquired over the years by joining a company's board. I think that would be very interesting—providing a fuller picture of what it takes to be on a board and to work with fellow directors and the management team to grow the shareholder value. I think that would be fascinating, actually. Nevertheless, I do know that it's incredibly difficult to get on your first corporate board. That's one of the messages we share with women during our events—the different possible strategies for getting on boards. Ghaffari: I cannot imagine that you are not on everybody's short list as a director candidate.

pages: 483 words: 141,836

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

These would be companies with low institutional ownership, so there was little oversight of management, but active and intelligent message boards where we thought we could reach shareholders of at least 20 percent of the float. Furthermore, these companies would have obvious actions that management could take to improve shareholder value. For example, four years later when the portfolio was eventually formed, we had a company that I wanted to sell itself; another that I wanted to close its large, money-losing division and fund its fast-growing, profitable division; and another that I wanted to “de-REIT,” that is, convert from a real estate investment trust (REIT) to a regular corporation.

pages: 441 words: 136,954

That Used to Be Us
by Thomas L. Friedman and Michael Mandelbaum
Published 1 Sep 2011

We did the same thing, according to Seidman. “We created a separate sphere where we could behave situationally. The business world became that sphere. All those subprime mortgages—they were ‘only business.’ The idea was that there was an amoral space where as long as you were not breaking the law, your only responsibility was to ‘shareholder value and pursuit of profit.’” The damage inflicted by the rise of situational over sustainable values has affected public life as well. The short-term, me-first, never-mind-the-future attitude that did so much harm to the country’s financial system also obstructs the necessary responses to America’s major national challenges.

pages: 416 words: 39,022

Asset and Risk Management: Risk Oriented Finance
by Louis Esch , Robert Kieffer and Thierry Lopez
Published 28 Nov 2005

In addition, systematic analysis of the sources and causes of operational losses leads to: • Improvements in processes and quality. • Optimal distribution of best practices. 14 Asset and Risk Management A calculation of the losses attributable to operational risk therefore provides a framework that allows the controls to be linked to performance measurement and shareholder value. That having been said, this approach to the mastery of operational risk must also allow insurance programmes to be rationalised (concept of risk transfer), in particular by integrating the business continuity plan or BCP into it. 2.1.1.3 The triptych: Operational risk – risk transfer – BCP See Figure 2.1.

pages: 692 words: 127,032

Fool Me Twice: Fighting the Assault on Science in America
by Shawn Lawrence Otto
Published 10 Oct 2011

In a business sense, this means without spending one’s assets to finance current operations—i.e., don’t burn cash to heat your home. This is largely a matter of perspective. Imagine, for example, that we live in a galactic economy and you are the CEO of the corporate planet Earth, Inc. Your job is to maximize the shareholder value of Earth. To keep a healthy balance sheet, you will want to account for, monitor, and restore assets both known and unknown in Earth’s minerals and biodiversity, ranging from the sources of the new miracle drugs to those of the life-expanding high-tech resources of tomorrow. What makes sense for competition on this scale is different from what makes sense within a smaller frame of reference.

pages: 457 words: 128,838

The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order
by Paul Vigna and Michael J. Casey
Published 27 Jan 2015

“In business, creation stories reinforce the role of the individual as a societal agent of change and speak to a core audience of customers,” wrote Nicolas Colas, chief market strategist for brokerage ConvergEx, in a research piece reflecting on the importance of the mystery surrounding bitcoin’s founder. “They are the bedrock for what marketers call ‘brand’ and the source waters for Wall Street’s ‘shareholder value.’” Bitcoin’s “brand” is undoubtedly tied to the founder and the mystery surrounding him, her, or it. Homages to Satoshi appear throughout bitcoin culture: the smallest denomination of a bitcoin is called a Satoshi, numerous meetups are held in places dubbed Satoshi Square, various bitcoin businesses have used the founder’s name, including the high-profile gambling site SatoshiDice.

pages: 444 words: 127,259

Super Pumped: The Battle for Uber
by Mike Isaac
Published 2 Sep 2019

Shervin Pishevar, an early Uber backer, came to Kalanick’s defense. In the war of investors versus Travis Kalanick, Pishevar sided with Kalanick. On August 11, Pishevar sent a letter to Benchmark, asking the firm to step down from Ubers’ board of directors. “We do not feel it was either prudent or necessary from the standpoint of shareholder value, to hold the company hostage to a public relations disaster by demanding Mr. Kalanick’s resignation,” the letter said, claiming to represent a group of shareholders. The move came with an offer: Pishevar and his coalition said it would buy out 75 percent of the shares held by Benchmark—an action that would require Benchmark to step down from the board.

pages: 561 words: 138,158

Shutdown: How COVID Shook the World's Economy
by Adam Tooze
Published 15 Nov 2021

The other missing ingredient in the classic fascist equation, which is more central to this book, is social antagonism, a threat, whether imagined or real, to the social and economic status quo. As the constitutional storm clouds gathered in 2020, American business aligned massively and squarely against Trump. Nor, as we shall see, were the major voices of corporate America afraid to spell out the business case for doing so, including shareholder value, the problems of running companies with politically divided workforces, the economic importance of the rule of law, and astonishingly, the losses in sales to be expected in the event of a civil war. This alignment of money with democracy in the United States in 2020 should be reassuring, up to a point.

pages: 573 words: 142,376

Whole Earth: The Many Lives of Stewart Brand
by John Markoff
Published 22 Mar 2022

Bezos was immediately intrigued after Brand described the Long Now project, in part because he felt his business philosophy was predicated on a set of ideas that resonated with the effort: “It’s All About the Long Term,” he had written in his first letter to Amazon shareholders in 1997. “We believe that a fundamental measure of our success will be the shareholder value we create over the long term.”[2] In 2003, Bezos jumped in as a funder. Several years later, while he was looking for land for his space company, Blue Origin, Bezos traveled several times with Brand to the Long Now Nevada site. The Amazon founder argued that the site, surrounded by National Forest and Bureau of Land Management property, would prove to be a bureaucratic nightmare for building an offbeat undertaking like the clock and that a better idea would be to install the first clock on a 165,000-acre tract he was buying in Texas, bounded by the Sierra Diablo Mountains, the least occupied region of the United States.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

Regardless of which process is employed, a public company’s board of directors must negotiate with a prospective investor and decide whether or not to recommend the offer to shareholders based on its fiduciary duty to the same; shareholders ultimately vote to approve or reject the proposal. A board of director’s fiduciary duty adds an additional layer of complexity to a P2P buyout. Public boards’ core duty is to maximize shareholder value in the event of an acquisition. If the buyer is a controlling shareholder or includes members of a company’s management team represented on the board (as in a management buyout), an independent committee of directors will assume the board’s responsibility; existing shareholders participating in the buying group will not be included in the shareholder vote to accept or reject the deal.

pages: 474 words: 130,575

Surveillance Valley: The Rise of the Military-Digital Complex
by Yasha Levine
Published 6 Feb 2018

A Threat Emerges From their inception, Internet companies banked heavily on the utopian promise of a networked world. Even as they pursued contracts with the military and their founders joined the ranks of the richest people on the planet, they wanted the world to see them not just as the same old plutocrats out to maximize shareholder value and their own power but also as progressive agents leading the way into a bright techno-utopia. For a long time, they succeeded. Despite the slow dribble of news stories about Silicon Valley inking deals with the CIA and NSA, the industry was somehow able to convince the world that it was different, that it somehow stood in opposition to traditional power.

pages: 426 words: 136,925

Fulfillment: Winning and Losing in One-Click America
by Alec MacGillis
Published 16 Mar 2021

It’s not what they’re going to be thinking about. Jeff’s perspective is the canonical neoliberal perspective: that the only purpose of corporations, the only purpose of shareholders, is to enrich themselves to the exclusion of everything else. That is the highest sole responsibility. Maximize shareholder value and somehow magically that will create the common good. If the only fucking thing that matters is the stock price, why in the world would you do anything else?” * * * “Alexa, would you please introduce our keynote speaker?” “It would be my pleasure,” said Alexa, her recently upgraded voice—redesigned to be more humanoid and less robotic, and unveiled in a Super Bowl commercial—booming through the hugely capacious hall of the Washington Convention Center.

pages: 475 words: 134,707

The Hype Machine: How Social Media Disrupts Our Elections, Our Economy, and Our Health--And How We Must Adapt
by Sinan Aral
Published 14 Sep 2020

I realize that some eventualities could not have been foreseen in the decisions that were made in early days. But I also know that when faced with certain truths, we have a moral duty to act. More needs to be done about the negative consequences of the Hype Machine today. I believe the true leaders of the New Social Age will be those who make the hard decisions to put social welfare above shareholder value—or perhaps those who realize that, in the long run, these goals are aligned. As an investor, I try to distinguish the forest from the trees. When you are building a business, you are singularly committed to the survival and growth of that business. But as an investor, you also see the marketplace as a landscape of renewal.

pages: 502 words: 132,062

Ways of Being: Beyond Human Intelligence
by James Bridle
Published 6 Apr 2022

Imagine a system with clearly defined goals, sensors and effectors for reading and interacting with the world, the ability to recognize pleasure and pain as attractors and things to avoid, the resources to carry out its will, and the legal and social standing to see that its needs are catered for, even respected. That’s a description of an AI – it’s also a description of a modern corporation. For this ‘corporate AI’, pleasure is growth and profitability, and pain is lawsuits and drops in shareholder value. Corporate speech is protected, corporate personhood recognized, and corporate desires are given freedom, legitimacy and sometimes violent force by international trade laws, state regulation – or lack thereof – and the norms and expectations of capitalist society. Corporations mostly use humans as their sensors and effectors; they also employ logistics and communications networks, arbitrage labour and financial markets, and recalculate the value of locations, rewards and incentives based on shifting input and context.

pages: 575 words: 140,384

It's Not TV: The Spectacular Rise, Revolution, and Future of HBO
by Felix Gillette and John Koblin
Published 1 Nov 2022

In September 2019, Elliott Management went public with a scathing letter, eviscerating AT&T’s management and, in particular, its handling of the Time Warner acquisition. The letter highlighted the high rate of leadership turnover at HBO and other WarnerMedia assets, which it called “alarming,” given AT&T’s lack of experience in entertainment. Step one to reviving shareholder value, the hedge fund argued, was to sell DirecTV, which AT&T had purchased in 2015 for $49 billion, a deal that was looking worse by the day. Step two: get rid of Stankey. The letter caused a massive commotion among AT&T investors and ratcheted up the pressure on the company to prove its managerial competence.

pages: 554 words: 149,489

The Content Trap: A Strategist's Guide to Digital Change
by Bharat Anand
Published 17 Oct 2016

However the relationship is structured—whether producer and distributor are merged into a single entity or contract at arm’s length—the content decisions should be the same: Hit programs should always be kept on the air, duds always taken off. Zero-sum logic suggests, then, that vertical integration brings no benefit other than increasing the power and influence of an acquirer. This is the reason for skepticism about integration, for why in practice it is more likely to destroy rather than increase shareholder value. There are exceptions. Consider a setting where both the content provider and distributor have asomething unique to offer. Then, we might observe what’s called the “double markup problem”: the content provider marks up the price of its content to capture value from the distributor, who in turn marks it up again when reselling the content to the end user.

pages: 535 words: 158,863

Superclass: The Global Power Elite and the World They Are Making
by David Rothkopf
Published 18 Mar 2008

This initiative was the result of his growing concerns about the effect of fossil fuels on the environment and, consequently, on the world economy. Beginning by reframing the company’s mission as taking it “Beyond Petroleum,” Browne put in place measures that led to the reduction of BP’s emissions to “10 percent below its 1990 levels, without cost. Indeed, the company added around $650 million of shareholder value, because the bulk of the reductions came from the elimination of leaks and waste.” Even so, some critics said he did not do enough, with one environmental organization castigating him with an ironic award for “Best Impression of an Environmentalist.” Nonetheless, through his emphasis and his words if more so than the company’s actions, Browne acknowledged the effect of a globalized economy and set a precedent in the business community by pressing world leaders to recognize the threat of global warming.

pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets
by Michael W. Covel
Published 19 Mar 2007

The New Investment Superstars. Canada: John Wiley & Sons, Inc., 2001. Peters, E.E. Fractal Market Analysis. New York: John Wiley & Sons, Inc., 1994. Rand, Ayn. Atlas Shrugged. New York: Random House, 1957. Rand, Ayn. The Fountainhead. New York: Bobbs-Merrill Company, 1943. Rappaport, Alfred. Creating Shareholder Value: A Guide for Managers and Investors. New York: The Free Press, 1998. Rappaport, Alfred and Michael J. Mauboussin. Expectations Investing. Boston: Harvard Business School Publishing, 2001. Reerink, Jack. Seidler’s Returns Fuel Comeback. Futures, Vol. 24, No. 3 (March 1995). Rogers, Jim. Investment Biker.

pages: 565 words: 151,129

The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism
by Jeremy Rifkin
Published 31 Mar 2014

Patagonia, the California-based global sports clothier, with annual sales around $540 million, is the most prominent company to date to make the switch to a benefit corporation.29 Benefit corporations, which are now recognized and regulated as legal entities in 18 U.S. states, offer entrepreneurs a form of legal protection against outside investors who might force them to give up their social or environmental commitments in return for new financing.30 Although benefit corporations operate as capitalist companies and are responsible to their shareholders, their new legal status enables them to put their social and environmental mandates up front without risking the wrath of investors interested only in optimizing shareholder value. The benefit corporation is part of a larger wave loosely defined under the rubric of social entrepreneurialism that’s captured the imagination of a younger generation coming out of business schools around the world. Social entrepreneurialism casts a wide net from the nonprofits that are the mainstay of the Commons to the traditional shareholding companies that are the dominant enterprises in the marketplace.

pages: 538 words: 147,612

All the Money in the World
by Peter W. Bernstein
Published 17 Dec 2008

Not all of his deals23 prospered: His purchase of Trans World Airlines (TWA) in 1985 with excessive junk debt caused the airline to go bankrupt after he busted its union. Icahn landed on the Forbes 400 list in 1987 (net worth: $525 million). Dallas-based oil tycoon T. Boone Pickens, another Drexel client, also came home rich from raiding. Arguing that he was increasing shareholders’ value, he bought stock in Cities Services (Citgo). Then he earned $30 million24 selling his shares back after losing a hostile bid to buy the company, which was twenty times the size of his own Mesa Petroleum. Later he earned $760 million pre-tax for himself and his investors when his partial tender offer for Gulf Oil scared the company into the arms of Standard Oil of California.

pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

Moreover, the passage of time and the experience of a long period of financial stability had robbed the Western world of the terror of financial instability born in the 1930s. At the same time, economics provided theories justifying the proposition that free markets would allocate resources optimally. We saw the rise, for example, of the efficient market hypothesis associated with Chicago University’s Nobel laureate Eugene Fama and of belief in shareholder value maximization associated with Harvard University’s Michael Jensen. Beyond these intellectual arguments in favour of financial liberalization there were also practical arguments against regulation. Over time, it was found increasingly difficult to make the regulations that existed stick, as financial actors increasingly found ways around them.

pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

Leverage on Wall Street Leverage numbers like the 15 to 1 in our banking example were chump change compared to what the big investment banks were doing prior to the meltdown. Venerable firms like Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs (the old Big Five) operated with 30-to-1 or even 40-to-1 leverage. Think about what that means: With 40-to-1 leverage, a mere 2.5 percent decline in the value of your assets wipes out all shareholder value. That’s a pretty risky way to run a business. What were they thinking? Where were the regulators? The result of extreme leverage is predictable, though its timing never is. When asset values dropped after the housing and fixed-income bubbles burst, many of these highly leveraged firms were ill prepared to absorb losses.

pages: 527 words: 147,690

Terms of Service: Social Media and the Price of Constant Connection
by Jacob Silverman
Published 17 Mar 2015

Their promises of “self-regulation” and “more relevant advertisements” satisfy neither category, not while a fat trade in personal data goes on in secret. Why should we rely on them to make innovative use of our data, at profit to themselves and debit—monetarily, socially, culturally—to us? Their job is to extract value from the intimate details of our lives. And you can be assured that shareholder value is more important to them than some sense of altruism or consumer rights. Internet giants don’t deserve our deference. As with government, our relationships with them should be adversarial, full of skepticism and critique. They show little loyalty to us, collecting, mining, and selling ever more of our data, and so they should receive little in return.

pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge
by Faisal Islam
Published 28 Aug 2013

But elsewhere in the auto industry’s Midwestern ‘rust belt’, particularly in neighbouring Ohio (which was crucial to Mitt Romney’s hopes of beating Obama), the message that Obama’s ‘spine of steel’ had saved General Motors and the auto industry won the day, and helped Obama stay put in the White House. It is important to reflect on this. The company in question, GM, was the pioneer of many shibboleths of US corporate capitalism: consumer marketing and branding; specialised assembly lines; and the idea of shareholder value. But now GM was bankrupt. And the American government, dedicated to the free market, not only bailed out GM and the entire auto industry, it also got the votes for this in Congress. Obama’s vice president, Joe Biden, used this fact as the central tagline of his boss’s re-election campaign: ‘Under Barack Obama, Bin Laden is dead and GM is still alive.’

pages: 519 words: 155,332

Tailspin: The People and Forces Behind America's Fifty-Year Fall--And Those Fighting to Reverse It
by Steven Brill
Published 28 May 2018

I think they will understand that if you’re thinking about the long term, you have to invest in companies that worry about winning the trust of their customers, having a healthy talent pipeline, and, yes, think about long-term issues like climate so that they don’t end up with stranded assets.” In 2017, for the first time, McKinsey’s annual guide to “Measuring and Managing the Value of Companies” devoted an opening chapter to attacking short-termism, declaring, “Creating shareholder value is not the same as maximizing short-term profits.” What followed was a practical argument, backed by numbers, examples, and graphs, that shareholders are better off if denied short-term sugar highs. “Managers must resist short-term pressure to take actions that create illusory value quickly at the expense of the real thing in the long term,” the report concluded.

pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power
by Michel Aglietta
Published 23 Oct 2018

This resulted in the greatest expansion of industrial capital in history. In its opening phase, the wave of IT innovations essentially encouraged finance and the services associated with it. Industrial companies were financialised and their objectives and modes of governance were subjected to the so-called ‘shareholder value’ principle. The result was spectacular: a fall in growth and in productive investment, a deceleration of productivity gains, stagnation in real median primary wages, and enterprise growth coming through external means. This increased the concentration of capital ownership and offered elite managers gigantic windfalls, camouflaged as salary benefits.

pages: 470 words: 148,730

Good Economics for Hard Times: Better Answers to Our Biggest Problems
by Abhijit V. Banerjee and Esther Duflo
Published 12 Nov 2019

The one exception, which in some ways proves the rule, is that CEOs of companies where there is a single large shareholder who sits on the board (and is vigilant because it is his own money on the line) get paid significantly less for luck than for genuinely productive management.56 Stock options probably contributed to the skyrocketing CEO salaries, by normalizing the idea that CEO pay was directly linked to shareholder value and nothing else. In addition, linking managerial pay to the stock market meant that managers’ pay was no longer linked to a salary scale within the enterprise. When everyone was on the same scale, CEOs had to grow salaries at the bottom to increase their own. With stock options, they had no reason to increase wages at the bottom, and in fact every reason to squeeze costs.

pages: 542 words: 145,022

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

He then assumed that their earnings would grow at twice the rate as the S&P 500 over the next five years. Under this rosy forecast, the average P/E ratio of these stocks would only drop to 89. Siegel once again observed that while the excitement generated by the technology and communications revolution was justified, this wouldn’t necessarily translate into increased shareholder value. His conclusion: “Value comes from the ability to sell above cost, not from sales.… In a competitive economy, no profitable firm will go unchallenged. Margins must erode as others chase the profits that seem so easy to come by now. There is a limit to the value of an asset, however promising.

pages: 584 words: 149,387

Essential Scrum: A Practical Guide to the Most Popular Agile Process
by Kenneth S. Rubin
Published 19 Jul 2012

Equally important, the Scrum development progressed at seven times the velocity of the waterfall development, meaning that per unit of time, the Scrum development produced about seven times more valuable features than the waterfall development. Even more compelling was that we delivered the software to our partner in a time frame that met the expectations for the launch of its new hardware platform. This enabled us to reinforce a long-term partnership that substantially increased the shareholder value of Genomica. Can Scrum Help You? The Genomica pre-Scrum experience of building features that nobody wanted and delivering those features late and with poor quality is not uncommon. Genomica, like many other organizations, had survived by being no worse than its competitors. I saw the same problems when I first started working in commercial software development in the mid-1980s.

pages: 543 words: 157,991

All the Devils Are Here
by Bethany McLean
Published 19 Oct 2010

“Fannie and Freddie were in the penalty box. They were gone.” As Fannie’s market share dropped, the company’s investors grew restless—so restless that Fannie hired Citigroup to look at what Citi called “strategic alternatives to maximize long-term Phineas [the code name the Citi team gave Fannie] shareholder value.” In a July 2005 presentation, Citi concluded that Fannie shouldn’t privatize, because its charter was its “core asset,” accounting for up to 50 percent of its current market capitalization. Among Citi’s key recommendations for increasing that market capitalization: Fannie should begin guaranteeing “non-conforming residential mortgages”—i.e., subprime.

pages: 568 words: 162,366

The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea
by Steve Levine
Published 23 Oct 2007

Peter Castenfelt, the Russian government’s adviser and ally of Giffen in his anti-Deuss campaign, warned that a stake in Tengiz could not be acquired at a bargain-basement price like Baku accepted. In Azerbaijan, it had been the government that supplied Lukoil’s share; in this case, it would be Chevron. Even if the oil company were inclined to accommodate Russia, it could not be seen as compromising shareholder value—or violating U.S. anti-bribery law. That, Castenfelt told the Lukoil boss, ruled out any sweetheart deal. Alekperov flew to Kazakhstan and braced Prime Minister Akezhan Kazhegeldin. “We want to be a partner and want some part of Tengiz,” he said, according to the prime minister. The Kazakhs should “force Chevron to sell 5 percent to Lukoil.”

pages: 552 words: 168,518

MacroWikinomics: Rebooting Business and the World
by Don Tapscott and Anthony D. Williams
Published 28 Sep 2010

We’ll shield you from the really scary stuff because we’re not sure you can take it.” He adds: “And we’re not sure it’s commercially a good thing to push out challenging analyses. Innovation is at the edge. It’s not in the mainstream.” Understandably, there is a crisis of leadership emerging. To succeed, we need a new kind of leader in industry—one who sees improving shareholder value as complementary to improving the state of the world and who understands that businesses must operate with a new set of principles. We need leaders in government who see citizens as active shareholders in the democracy rather than passive spectators. We need civil society leaders willing to open up the old bureaucratic structures of the nonprofit world to forge a new model of social innovation.

pages: 580 words: 168,476

The Price of Inequality: How Today's Divided Society Endangers Our Future
by Joseph E. Stiglitz
Published 10 Jun 2012

Many believe that the privatizations in the UK under Margaret Thatcher, with shares publicly floated and with the number of shares any one person or company could buy strictly limited, were conducted deliberately in a manner to avoid such outcomes. 23. See Forbes America’s Highest Paid Chief Executives 2011, available at http://www.forbes.com/lists/2011/12/ceo-compensation-11_rank.html. 24. This is obviously a controversial claim: the CEOs might argue that in fact they receive but a small fraction of what they contribute to shareholder value. But, as we argue below, the so-called incentive structures are poorly designed, providing little link between that part of the increase in market value that is attributable to the efforts of the CEO and that which is the result of broader market forces—lower costs of inputs or higher stock market prices in general.

pages: 559 words: 169,094

The Unwinding: An Inner History of the New America
by George Packer
Published 4 Mar 2014

In 1999, having consolidated its parts divisions, including Packard, into one entity called Delphi Automotive Systems, General Motors spun off Delphi into an independent corporation, with a public stock offering and a prospectus for investors that promised to “improve operating performance” with “a ‘fix/sell/close’ plant-by-plant analysis through which we seek to improve our cost competitiveness, and various other sourcing, labor, and cost reduction initiatives.” Wall Street had been pushing GM to spin off Delphi for at least a year, thinking there would be more shareholder value in a smaller automaker and a separate parts company than in one vertically integrated GM. Tammy found the whole spin-off suspicious. “At the time, Packard Electric was profitable. As soon as we came under Delphi, we were no longer profitable,” she said. “I had a feeling then that something was not right about this.

pages: 526 words: 160,601

A Generation of Sociopaths: How the Baby Boomers Betrayed America
by Bruce Cannon Gibney
Published 7 Mar 2017

Newsweek, 14 Feb. 1993, www.newsweek.com/nannygate-ii-womens-backlash-195214. 22. The CEA provides a good overview of market concentration and its effects. Council of Economic Advisors. CEA. “Benefits of Competition and Indicators of Market Power.” Apr. 2016. 23. Trainer, David. “How Stock Buybacks Destroy Shareholder Value.” Forbes, 24 Feb. 2016; see also Lazonick, William. “Profits Without Prosperity.” Harvard Business Review, Sept. 2014. 24. Rosenbaum, Aliza, and Rob Cox. “Big Money: Is Big Beer Begging for an Anti-Trust Probe?” The Washington Post, 6 Sept. 2009, www.washingtonpost.com/wp-dyn/content/article/2009/09/04/AR2009090404236.html.

pages: 505 words: 161,581

The Founders: The Story of Paypal and the Entrepreneurs Who Shaped Silicon Valley
by Jimmy Soni
Published 22 Feb 2022

The PayPal independence movement picked up steam, thanks to activist investor Carl Icahn. In 2013, Icahn took a significant stake in eBay and began to push it to spin off PayPal. In its January 2014 quarterly report, eBay responded: “Regarding Mr. Icahn’s separation proposal, eBay’s Board of Directors… does not believe that breaking up the company is the best way to maximize shareholder value.” Icahn and eBay sparred over the spring and summer, with Icahn levying charges of conflict of interest and lapses in corporate governance against eBay, in addition to his unceasing calls for PayPal’s separation. “We have found ourselves in many troubling situations over the years, but the complete disregard for accountability at eBay is the most blatant we have ever seen,” Icahn wrote in February 2014.

pages: 568 words: 164,014

Dawn of the Code War: America's Battle Against Russia, China, and the Rising Global Cyber Threat
by John P. Carlin and Garrett M. Graff
Published 15 Oct 2018

With frustration evident in my voice, I pointed out how their own calculations showed their own eventual death. “You’re showing me—you’ve done the projections—that it’s going to be too late by then to turn your business around,” I said. The general counsel actually agreed with my assessment, but he explained that the company’s boardroom imperative was to improve shareholder value at that moment. Who knew what might happen down the road? The company’s leadership might change, there might be some new industry innovations. At that moment, though, they wanted to maintain the status quo. He finished with a statement that left me shaking my head: “We are going to be coming back to you and complaining, but we’re not there yet.”

pages: 581 words: 162,518

We the Corporations: How American Businesses Won Their Civil Rights
by Adam Winkler
Published 27 Feb 2018

See Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, September 13, 1970. 30. On the shareholder wealth maximization norm, see Stephen M. Bainbridge, “In Defense of the Shareholder Wealth Maximization Norm,” 50 Washington & Lee Law Review 1423 (1993). On its flaws, see Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (2012); Joel Bakan, The Corporation (2005). 31. See Cortner, The Kingfish and the Constitution, 139. 32. See ibid. 33. Ibid., 91. 34. See Olken, “The Business of Expression,” 292 n. 215. 35. See G. Edward White, The Constitution and the New Deal (2002), 81, 296–297. 36.

pages: 678 words: 160,676

The Upswing: How America Came Together a Century Ago and How We Can Do It Again
by Robert D. Putnam
Published 12 Oct 2020

For example, the dominant philosophy of business management during the “we” era (as epitomized by George Romney) had been that corporate decisions should take into account a wide range of constituencies beyond the owners—employees, customers, suppliers, and even the wider community within which they operated—what would later be called “stakeholders.” But the newer libertarian philosophy of the 1970s argued for sharply narrowing the focus of business management to a single group—the shareholders of the company’s stock—and closely linking the income of managers themselves to the stock price. “Shareholder value” (that is, the stock price) became the single metric for managerial success; this term first appeared (according to Ngram) in 1976 and then exploded in usage after 1980. The CEO of General Electric from 1981 to 2001, Jack Welch, converted that idea from theory to the dominant business culture and by 1999 was named “Manager of the Century” by Fortune magazine.

pages: 1,336 words: 415,037

The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Published 1 Sep 2008

He distrusted the arbitrage casino, but he saw an opportunity for the restaurant chain on a global scale. When he bought Salomon for Travelers, some observers felt that since Solly hadn’t done well under Buffett, Weill saw it as a chance to beat Buffett at his own game. Buffett hailed Weill for the decision as a genius at building shareholder value.14 And Travelers paid $9 billion for Salomon, bailing Buffett out of his problem-child investment.15 Meriwether, who knew that Buffett liked owning casinos, had gone to Omaha with one of his partners to try to raise money for Long-Term Capital for its February 1994 launch. They ate the now-obligatory dinner at Gorat’s, where J.M. pulled out a schedule over his steak to show Buffett different probabilities of results and how much money Long-Term could make or lose.

…

Deborah Brewster, Simon London, “CalPERS Chief Relaxes in the Eye of the Storm,” Financial Times, June 2, 2004. 13. Interview with Don Graham. 14. “Coke Shareholders Urged to Withhold Votes for Buffett,” Atlanta Business Chronicle, April 9, 2004. 15. In “The Rise of Independent Directors in the U.S., 1950–2005: Of Shareholder Value and Stock Market Prices” (Stanford Law Review, April 2007), Jeffrey N. Gordon concludes, “One of the apparent puzzles in the empirical corporate governance literature is the lack of correlation between the presence of independent directors and the firm’s economic performance. Various studies have searched in vain for an economically significant effect on the overall performance of the firm.” 16.

pages: 695 words: 194,693

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

The tiny settlement of New Orleans was situated at the mouth of one of the world’s largest continuously navigable rivers that linked the northern fur trade of French Canada to a southern port. Although the plantation system had not yet been actively implemented in Louisiana, the rich alluvial soil held promise for intensive agricultural exploitation. For shareholders valuing future cash flow, the 800 million square miles of North America must have seemed like a pretty good long-term gamble. Law’s vision quickly surpassed the model of the South Sea Company. He saw the potential to absorb all overseas trading rights of France into one firm through mergers and acquisition.

pages: 706 words: 206,202

Den of Thieves
by James B. Stewart
Published 14 Oct 1991

Davis deemed the proposal to be little more than an attempt at bribing him to sell the company at a low price. Boesky agreed that it was a lowball bid, but seemed unfazed. "You'd be my partner," Boesky said, as odious a prospect as Davis could imagine. Davis prudently said he'd consider the suggestion. Unlike many chairmen of public companies, he'd often said his principal goal was to increase shareholder value, and he wouldn't reject takeover bids out of hand. Too many managements were stealing companies through LBOs at scandalously low prices, however, and he wasn't about to join their ranks. He told Icahn and Boesky that he liked running a public company, and wanted to keep it that way. He phoned Boesky soon after, politely rejecting their suggestion for a leveraged buyout.

pages: 935 words: 197,338

The Power Law: Venture Capital and the Making of the New Future
by Sebastian Mallaby
Published 1 Feb 2022

With capital from all manner of investors flooding into the Valley, Benchmark faced similar fundraising contests across its portfolio. “The burn rates went through the moon,” Gurley recalled. “It wasn’t like it was just ride hailing. The earth started moving all over the place.”[53] Besides, whatever Uber’s burn rate, the company was creating astonishing amounts of shareholder value. In June 2014, shortly after a Series D round valued Uber at $17 billion, a New York University professor named Aswath Damodaran wrote a critical piece, arguing that Uber’s true worth was far below that.[54] He estimated the size of the global taxi market to be around $100 billion and concluded that fair value for Uber might be $5.9 billion—less than half the Series D price tag.

pages: 789 words: 207,744

The Patterning Instinct: A Cultural History of Humanity's Search for Meaning
by Jeremy Lent
Published 22 May 2017

Along with their vast power, corporations have imposed on the world a set of values, arising from their overriding objective to maximize financial returns, at odds with many intrinsic human values. Even those in a position of power within a corporation only maintain that power as long as they follow the corporate mandate of maximizing shareholder value above all other considerations.24 An illustration of this single-minded corporate focus on financial returns can be seen in a conversation between biologist Paul Ehrlich and a Japanese journalist. Ehrlich observed that the Japanese whaling industry was at risk of exterminating the whales that were the source of its wealth.

The Code: Silicon Valley and the Remaking of America
by Margaret O'Mara
Published 8 Jul 2019

The 1990s left the Lamborghini-driving-and-Chablis-swilling wealth creation of the 1980s in the dust. In the PC-happy summer of 1983, the NASDAQ crested at a little over 300. In March 2000, it surpassed 5,000. During the eight years Bill Clinton was president, the tech-heavy composite grew by nearly 600 percent.1 But the avalanche of shareholder value was just one measure of how the online era changed the American economy. Software vapor floated atop a very tangible hardware infrastructure: millions of miles of copper wires and broadband connections and routers and servers that flowed into offices and schools and homes. Old-economy corporations spent billions retrofitting their operations for the online age.

pages: 620 words: 214,639

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
by William D. Cohan
Published 15 Nov 2009

Schwartz explained that Bear had been working with Lazard to arrange the facility with JPMorgan, which he hoped “will allow us to achieve the objective of calming down the marketplace and giving us the chance to get some facts out into the marketplace.” Schwartz said Bear would continue working with Lazard on “alternatives”—often banker code for pursuing a sale of the company—“with a focus on ensuring that we can handle and protect our customers well and at the same time maximize shareholder value.” Schwartz then opened up the call to questions and said he looked forward to speaking with everyone again on Monday for the earnings release. Guy Moszkowski, Merrill Lynch's Wall Street research analyst, asked the executives to explain, if they could, what had led to the liquidity crunch. Was it the failure of overnight lenders in the repo market to offer financing, the withdrawal by hedge funds of the free cash balances from their accounts, or both?

pages: 801 words: 209,348

Americana: A 400-Year History of American Capitalism
by Bhu Srinivasan
Published 25 Sep 2017

Larry finds the company’s stock to be cheap, surmises that liquidating the assets of New England Wire and Cable would fetch him more than what he could buy the company for, and asks other shareholders to join him in killing the company. In the final closing scenes, in a large hall convening both workers and shareholders, Peck’s character argues that this was the equivalent of murdering communities, “only on Wall Street, they call it maximizing shareholder value, and they call it legal, and they substitute dollars bills where a conscience should be.” Then he implores, losing his temper, “Damn it, a business is worth more than its stock. . . . It is where we earn our living . . . dream our dreams. In every sense, it is what binds our communities together.”

pages: 678 words: 216,204

The Wealth of Networks: How Social Production Transforms Markets and Freedom
by Yochai Benkler
Published 14 May 2006

The primary obstacles to diffusion of these desiderata in the required direction are the institutional framework of intellectual property and trade and the political power of the patent-dependent business models in the information-exporting economies. This is not because the proprietors of information goods and tools are evil. It is because their fiduciary duty is to maximize shareholder value, and the less-developed and developing economies have little money. As rational maximizers with a legal monopoly, the patent holders restrict output and sell at higher rates. This is not a bug in the institutional system we call "intellectual property." It is a known feature that has known undesirable side effects of inefficiently restricting access to the products of innovation.

Americana
by Bhu Srinivasan

The Age of Turbulence: Adventures in a New World (Hardback) - Common
by Alan Greenspan
Published 14 Jun 2007

*I had always t h o u g h t t h e p a y m e n t system should be wholly private, b u t I found t h a t Fedwire, t h e electronic funds-transfer system operated by t h e Federal Reserve, does offer something no private bank can: riskless final settlements. T h e Fed's discount window serves as a lender of last resort, a function t h e private sector cannot provide w i t h o u t impairing a b a n k shareholder's value. 3 74 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright. GLOBALIZATION AND REGULATION 2. Sometimes several regulators are better than one. The solitary regulator becomes risk averse; he or she tries to guard against all imaginable negative outcomes, creating a crushing compliance burden.

pages: 825 words: 228,141

MONEY Master the Game: 7 Simple Steps to Financial Freedom
by Tony Robbins
Published 18 Nov 2014

BOONE PICKENS: MADE TO BE RICH, MADE TO GIVE * * * Chairman and CEO of BP Capital Management T. Boone Pickens, dubbed the “Oil Oracle” by CNBC, has always been ahead of his time. In the early 1980s, he was the original corporate raider—although “shareholder activist” has always been the term he’s preferred. His early focus on maximizing shareholder value, virtually unheard of at the time, has long since become a standard of American corporate culture. As Fortune magazine declared, “Boone’s once revolutionary ideas [are] so completely taken for granted that they have become linchpins of the economy.” By the early 2000s, Pickens had become a hedge fund manager, making his first billion after turning seventy—with a second career investing in energy assets.

pages: 1,164 words: 309,327

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Firms trade when they repurchase their shares, issue new shares, purchase or sell shares of other firms, take over or merge with other firms, and purchase or sell commodities. Front running such trades spoils the prices that their firms ultimately obtain. Such abuses therefore directly dilute shareholder values. 29.3.2 Why Permit Insider Trading? The main arguments for unrestricted insider trading involve price efficiency, the costs of enforcement, and incentives for entrepreneurial behavior by managers. 29.3.2.1 Informative Prices Since insiders are well-informed traders, the price impacts of their orders push prices toward fundamental values.

pages: 1,373 words: 300,577

The Quest: Energy, Security, and the Remaking of the Modern World
by Daniel Yergin
Published 14 May 2011

And they manage large and complex businesses that, increasingly, are operating on a global scale. As Zhou Jiping put it, “As a national oil company, we have to meet the responsibilities of guaranteeing oil and gas supply to the domestic market. As a public company listed in New York, Hong Kong, and Shanghai, we must be responsible to our shareholders and strive to maximize shareholder value. And, of course, we have a responsibility to the 1.6 million employees of our company.” In short, Chinese oil companies are hybrids, somewhere between the familiar “international oil companies,” IOCs, and the state-owned national oil companies, NOCs. They have become a prime example of a new category called INOCs—the international national oil companies.

pages: 1,009 words: 329,520

The Last Tycoons: The Secret History of Lazard Frères & Co.
by William D. Cohan
Published 25 Dec 2015

Success is heralded as triumph; failures are trumpeted as success. A corporate mythology is spun and is largely accepted, unchallenged by the media. Some facts are simply obscured.... It is now time to begin to lift the fog." To raised eyebrows, Bruce blamed Time Warner management for creating a "corporate inferno" that immolated at least $40 billion in shareholder value through a combination of, among other things, "bloated overhead" (evidenced by the company's new corporate headquarters at Columbus Circle and its fleet of corporate aircraft) and a "history of ineffectual deal execution" (for instance, losing the acquisition of AT&T Broadband to Comcast and selling Warner Music to a private-equity consortium for far less than it later proved to be worth) that allowed competitors to "take advantage of TWX."

pages: 1,202 words: 424,886

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

One place is in real estate. A significant portion of corporate America’s consolidated assets are real estate, so we are spending a lot of energy at the moment figuring out how we can solve real estate problems—how we take these great, immobile, illiquid investments clients have and realize shareholder value, create opportunities for the client.” Corporate financial assets are also getting increasing attention from bankers; the same logic that has made liability swaps a huge business, can be and is being applied to asset swaps (Chapter 19). “It’s a whole different approach,” continued the same banker.