The Myth of Sharehiolder Value?

[bsned2]

Interesting topic, even if this article is a bit simplistic.

 

http://www.bostonglobe.com/ideas/2014/08/02/shareholder-value-bad-for-business/3O4MYxjWgmJ2DOPwkeYxyN/story.html?src=longreads

[loganc]

Interesting topic, even if this article is a bit simplistic.

 

http://www.bostonglobe.com/ideas/2014/08/02/shareholder-value-bad-for-business/3O4MYxjWgmJ2DOPwkeYxyN/story.html?src=longreads

 

[KinAlberta]

^^ Thanks for posting the article link. 

 

Ironically, it may be a simplistic article bashing the widespread adoption of an overly simplistic concept - the all-for-one "shareholder value" model.  Both unions and non-unionized employees including management and even suppliers all seek to share the wealth.  It seems that management has always been among the most successful group at accessing a larger share if not outright expropriating some, if not most, of the gains of the corporation by taking credit for upward stock price movement ('when the tide is raising all ships') or when the intrinsic merits of a product design sells itself and for numerous other non-management driven corporate gains. Some managements very successfully expropriate all future value of corporations though tactics to take companies private at substantial discounts to their then current intrinsic value.

 

As for Market Basket representing something new, didn't the Coke Classic episode a few decades back also reflect that "stakeholder model"?  Nothing new here I'd say.  People need to protect the franchise (moat) to maintain market beating performance, if not profitability.

[rkbabang]

The problem with "shareholder value" is that too many people (including most corporate managements) interpret that to mean "short term shareholder value" and don't think long term.  In the long term the shareholder's interests are usually in-line with the other "stakeholders" such as the management, employees, customers and community.

 

The whole Market Basket situation is fascinating.  I live right near a large Market Basket store and it is where my wife and I get the majority of our groceries.  Every time we drive by there are a lot of people outside holding signs, this is with no union organizing them or forcing them to do this.  We went in there once since the strike started a few weeks ago and it was a pretty sad sight.  The produce section was completely empty of all produce, the meat section was almost empty (I'm sure it is completely bare now), and you could tell nothing else was getting re-stocked either.  We weren't able to get most of what we needed, so we've been going elsewhere for our groceries and paying quite a bit more than we are used to.  They had the best value for groceries in New England, the stores are nice and clean, they offer products that can't be found at most other chains, (like raw cheese, grass-fed cream, or Kerrygold butter), and the people there aren't, well, like the people of Walmart, yet the prices are reasonable.  Our usual routine was to go to Trader Joe's every so often to stock up on things that we can't get at Market Basket and go to Market Basket once per week.  Our spending on food has gone up noticeably since this strike has started.

 

[matjone]

Why would you choose 1933 as the starting point for measuring return for the era before shareholder value became all-important?  Maybe it would be better to look at something managers have more control over, like return on equity?  If managers are using gimmicks to inflate the price at the expense of long term value, maybe the answer is smarter investors?

 

"Business should be a force for good, not for the enrichment of a few small individuals."  So we are saying that business hasn't been a source of good for society?

 

[rkbabang]

Why would you choose 1933 as the starting point

 

I noticed that too. If that isn't an example of cherry picking data points to fit a preconceived theory I don't what is.

[randomep]

Interesting topic, even if this article is a bit simplistic.

 

http://www.bostonglobe.com/ideas/2014/08/02/shareholder-value-bad-for-business/3O4MYxjWgmJ2DOPwkeYxyN/story.html?src=longreads

 

I'd have to totally disagree with the article on that one. I am not a fan of Milton Freeman but he has a great point. The crux of the article is that short-termism is an problem in corporations. I think we too often disregard long-termism which I think is a bigger problem.  For example, Amazon has been around 20yrs and they are barely able to turn a profit. Yet they still justify expanding! I really wish shareholders can quantify when Amazon can be a normal company with a 15x earnings multiple? Instead proponents say you should buy because they will take over the world someday.....someday......

 

In the 2000 cisco was bought cerent for $6bil. I was discussing with a coworker, that cerent will have to have blowout earnings for something like 60yrs to justify its price.

 

Too often I have seen long-termism as an excuse to cover up incompetence and bad ideas. Japan in the 80's was touted as a culture that promotes long-term growth, really what it means is to buy time for bad or a lack of earnings. And look at the result now.

 

It  also happens in engineering, in my line of work, managers and employee love to talk about projects that are well into the future, because it means they don't have to pay the piper for a few years, in which time, projects get cancelled, employees get laid off and the money wasted on the task is long forgotten.

 

Short term means also accountability, now as for fraud that is mentioned in the article, well that's a byproduct, just as increased suicides is a byproduct of work stress. We don't say government should force high paying engineers, doctors and management to work less hours......

 

my 2cents that is out of the box

 

 

 

 

[rkbabang]

The Market Basket strike is finally over, the employees got what they wanted the old CEO has found a way to finance the purchase of the company.

 

Market Basket deal ends bitter feud

 

"business specialists said the company’s employees accomplished a rare feat in halting operations until they got what they wanted. “To have an internal uprising of just about everyone, without a union, is very unusual in American industry,” said David Lewin, professor of management at the University of California, Los Angeles. “And it’s even more unusual for workers to say, ‘We want this guy to come back’ — and to have him actually come back.”"

 

 

It is going to be difficult for them to get all of their stores stocked back up and running after shutting down for 6 weeks.

 

After long lull, a rush to restock Market Basket stores