Comments on RANDOM RANTINGS: “Shareholder value orientation” – now, where did t...

I like your colleagues way of thinking. The shareh...

2008-07-30T10:09:00.000+01:00

I like your colleagues way of thinking. The shareholder value paradigm always seemed a little strange to me. I agree that investors should get a return on their investment, but in the end, the shareholder only invests money. The employess invest their human capital, the city/community/... invests its ressources, natural and other, etc. Stakeholder value theory took all of that into account - while shareholder value theory IMO leads to bad business results by focussing on the short term.

My favorite example of a well-run, publicly owned company that openly ignores the shareholder value paradigm is Porsche. I read an interview with the CEO, W. Wiedeking, where he lists shareholders as #5 or so on the list of people to care for... ;-)

On the other hand, I don't find it quite believable that the customer is #1, either. Maybe in industries where a long term relationship is established they share the top, but in the the end a sustainable operation will require a good balancing of ALL stakeholders.

And the shareholder paradigm will in few years be just as unknown as it was 20 years ago... ;-)

My comment needed editing. Point was the three co...

2008-07-28T14:57:00.000+01:00

My comment needed editing. Point was the three concepts are NOT mutually exclusive.

Sorry about that.

Joe Feig

The concepts of maximizing shareholder value, the ...

2008-07-28T14:55:00.000+01:00

The concepts of maximizing shareholder value, the customer comes first, and employee performance should be commensurately rewarded including extraordinary rewards on a recurring basis are mutually exclusive. They are in fact interrelated. How management of a company, be they owner-managers or "professional managers", (BTW, I believe all must have an ownership stake), executes their responsibilities to optimize all of these objectives, is the challenge of being an effective manager and the measure of one.

Joe Feig
Part-owner of a family women's contemporary clothing designer/mfr
and Managing Director of a small Investment Bank/Consulting Company

I am a senior executive working for an airline. I ...

2008-07-25T18:01:00.000+01:00

I am a senior executive working for an airline. I wouldn't challenge the "shareholders' value orientation", as it is indeed common sense (if not sacred cow) to me. But when it comes to the time for budgeting staff salaries, I always put the staff's interests as my top priority and push the envelope as such, and feel very right in doing so.

Pravin: Thanks for the quote and example. It would...

2008-07-24T21:12:00.000+01:00

Pravin: Thanks for the quote and example. It would always be Sumantra's point as well; that, in the long run, interests are aligned and that, as a company, you would do well to acknowledge this and act upon it. I guess there is a bit of wishful thinking involved as wel...

I found this post very interesting. Regarding the ...

2008-07-24T18:52:00.000+01:00

I found this post very interesting. Regarding the shareholder/owner question, there are some examples where shareholders have earned superior, sometimes outstanding economic returns yet managed to retain a sense of belonging and loyalty among employees. An example where it works really well is Berkshire Hathaway's portfolio companies.

Warren Buffet explains his philosophy regarding CEOs in his 2007 letter to shareholders (snippet below):
"In our efforts (to continue earning superior returns), we will be aided enormously by the managers who have joined Berkshire. This is an unusual group in several ways. First, most of them have no financial need to work. Many sold us their businesses for large sums and run them because they love doing so, not because they need the money. Naturally they wish to be paid fairly, but money alone is not the reason they work hard and productively. A second, somewhat related, point about these managers is that they have exactly the job they want for the rest of their working years. At almost any other company, key managers below the top aspire to keep climbing the pyramid. For them, the subsidiary or division they manage today is a way station – or so they hope. Indeed, if they are in their present positions five years from now, they may well feel like failures.
Conversely, our CEOs’ scorecards for success are not whether they obtain my job but instead are the long-term performances of their businesses. Their decisions flow from a here-today, here-forever mindset. I think our rare and hard-to-replicate managerial structure gives Berkshire a real advantage."