Friday’s Thoughts: Maximizing Shareholder Value

It is time to take a hard look at the universally accepted principle that the goal of business is to maximise shareholder value…

Given long enough time on the horizon, the interests of the company, the investors, and the executives would ultimately align. But with an average chief executive tenure of four and a half years, and an average stock holding period of only four months, short-term pressures exacerbate the focus on manipulating the stock rather than building the business…

The biggest cost of all, however, is neither to the company nor its shareholders, but to our society and our planet. The ubiquitous mandate to maximise short-term shareholder value has driven a deep wedge between business and society. The long term success of any company depends on the health and wellbeing of its employees, customers, and the communities in which it operates…

But a small, yet growing cadre of sophisticated business leaders are beginning to expand their focus beyond merely maximising shareholder value to creating¬†shared value. They are building strong companies and healthier societies at the same time; making money by reducing their environmental footprint, meeting the needs of low-income populations, and finding innovative, profitable solutions to social problems. One might expect that such an “altruistic” approach would diminish shareholder returns: instead, it keeps corporate leaders focused on the most powerful emerging trends and the long term fundamentals of their businesses.

-Mark Kramer, “What’s wrong with maximising shareholder value?,” 11/08/2012

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