shareholders, Toby Elwin, blog

Fast Start — How Shareholders are Ruining American Business

The Atlantic, shareholders ruining, american business, fast startFast Start conversation: During the 2007 and 2008 financial crisis, huge banks that were thought shareholder friendly found more financial trouble in effort to please shareholders.

An executive at a publicly traded corporation must serve both the long-term strategic health of the corporation and maximize short-term shareholder return, return that includes their compensation-tied stock.

Did shareholder return help cause the financial crises?

In How Shareholders are Ruining American Business, The Atlantic’s, Justin Fox, calls out shareholder value ideology. In the quest to maximize returns to shareholders executive doctrine shifted from stakeholders to shareholders.

The prime concern of shareholders is a return on their investment. If a shareholder does not see an appropriate return, they move on. fair return on an equity investment requires management look, firstly, to please investors.

It seems maximize economic value for shareholders presents a challenge to corporate executives.

One value to rule them all? Shareholder value is a common success measure for:

  • Pay,
  • Evaluation,
  • Governance reforms,
  • Media

Try to motivate employees with: “we maximize shareholder value”.  My alternative:  maximize return on stakeholder involvement.

How does return on involvement challenge shareholder return?

Are shareholders stakeholders?

How do shareholders impact the strategic plan?

When did board of directors turn away from their corporate stakeholders to become beholden to shareholders?

Are shareholder and stakeholder self-interest mutually exclusive?

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Comments 2

  1. My dear friend

    Not in a million years will the corps put stakeholders first, for the obvious reason that they don’t represent $$$’s. Or at least they don’t represent explicit, direct dollars and rarely anything short-term. This is the value set our pseudo-capitalist system has cultivated for the past 200 years. We think it is the best in the world. Why would we change it?

    Be you a big bank CEO, an F-500 CEO, a West Virginia coal miner, a Texas farmhand, an immigrant itinerant worker, an Arizona retiree or a self-made millionaire – few of these want to see any change in that system or the values that drive it. The poor among them are being deceived or are working so hard they have no energy for changing the system or both. The rich among them are determined to perpetuate the system that sustains them. And the middle class? Watch out! They are fast disappearing, having been further marginalized by the system like frogs in boiling water. since 2008.

    And we all keep hoping for a better day. 2014? Well no one can guarantee any predictions, but “keep hope alive” hasn’t worked out so well, so far.

    Charley Matera

    1. Post

      That change is hard does not present an impossible course for change – I know you believe that. Easy, no, because if it was easy someone would have done it already and the case against inertia is there for all to see.

      Hard, agreed. Change around this coming? Perhaps. I found it very interesting that this article hit my radar along with another from an unlikely source, December 31st ESPN’s Tuesday Morning Quarterback. In the section The Case Against Corporate Boards, here is an quick overview of the 6 paragraphs erudite author Gregg Easterbrook dedicates to his NFL tangent:

      Corporate board memberships are among the greatest hustles in American commerce. The Wall Street Journal recently reported that large public corporations pay their directors a median of $244,000 annually, plus lavish benefits, merely to sit in on occasional meetings, often held at luxury resorts …

      In theory, corporate boards exist to police management and protect shareholders, ensuring management doesn’t loot the company at shareholders’ expense. In practice, many boards are rubber stamps that let management get away with anything …

      Shareholders could revolt against lapdog corporate boards. But since even the most excessive board deals work out to a few cents of a major company’s share price, only those who hold huge blocks of stock have an incentive to fight corporate-board corruption. That’s why two recent developments are encouraging …

      If corporate boards were watchdogs rather than lapdogs, shareholders would be better served: and the sense that many CEOs are robbing the till might decline, which would be healthy for capitalism.

      Easterbrook then cites two firms actually acting against lapdog boards: 1) T. Rowe Price and 2) Institutional Shareholder Services

      This, in concert with conversations brought about in The Atlantic article, reveal conversations are not just happening, but are now in line towards action. A book The Shareholder Value Myth or Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It highlight the top end of the conversation, not the bottom end of the trough.

      Hope has a chance and chance, for any change possible, requires hope.

      I appreciate your contribution. And now that I am back in MA, I look forward to see you at the MassBay OD Learning Group.

      Happy 2014

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