The Business Roundtable letter was a PR move. It was an opportunity to virtue signal and pander to a "woke" news media. Maximizing long-term shareholder value should not be incongruent with "stakeholder" interests. Short-term stock increases and value fluctuations as seen in the stock market were never Milton Friedman's point when he said that a corporations purpose is to serve the interests of its shareholders...he was speaking of long-term value creation, because that is the only true value creation there is.
Really enjoyed listening to your perspective! In many of my courses, at IIM I'm taught that stakeholder benefits is the best thing that could happen. Listening to your perspective is sure to bring pragmatism to my views. As always, loved to hear you talk :D
Shareholders provide the capital that makes a corporation possible in the first place. Management is simply a group of _trustees_ acting on shareholders' behalf. They are literally paid with shareholder dollars, work in offices paid for by shareholder capital and are appointed by directors who are supposed to be acting on behalf of shareholders. "Stakeholders" (customers, employees, suppliers, etc) are important to the company _because of their contribution to shareholders' long-term returns,_ not the other way around. There is no conflict between the best interests of stakeholders and shareholders as long as you understand the former is a means to the later (a company like Apple is a great example, they have been creating enormous shareholder value for years with happy employees and repeat customers). Putting stakeholders and shareholders on an even footing is just a nice-sounding excuse to evade responsibility (customers, employees, and suppliers can't fire the CEO). Arrogant CEOs who think they can rewrite the priorities of the companies they run need to eat some humble pie or get sacked. You wouldn't tolerate an investment advisor who stole all your money and gave it to some charity he liked, why should we put up with the same thing as shareholders?
we used a customer first, employees second, model for our business and it made us very popular. because of that we were than creating shareholder value due to customer loyalty and branding. we sold up twice increasing our value each time 150%. the fact that we were a true tech company starting in 1990 when cost barriers were very low was a great advantage, but in my country in the 1990's we did have restrictions due to employee regulations which made growth and efficiency difficult. however we were so well known for our customer service and commitment to creativity it did not hamper us as far as ultimate $value to shareholders. i do not think i could start a business today though as barriers to entry and market saturation are unsurmountable obstacle to creative innovative industries.
I know that this will be considered sacrilegious but I don’t much care for any of the editions. It applies too much of a fixed income mindset to equity valuation. A stock is not a bond with price appreciation.
It has always seemed strange to me that "maximize value to shareholders" has become some kind of ultimate guarantor of good business practice regardless of ethical or societal implications (drug pricing/polution/debates about regulations/employee wages). Almost in a religious sense, as if CEOs are to be viewed as helpless subjects to some transcendental power "we couldn't make any other choice because we have to maximize shareholder value". This should be a very interesting topic/debate in the coming decades. Thanks for your take on this.
I disagree. What's good for one group can also be good for EVERY other groups. It's true that businesses wants to charge customers the highest price possible and pay employees as a little as possible but competition eventually will drive prices towards economic equilibrium. Capitalism is a system that rewards innovation and creativity. That's why capitalistic countries are so successful. It's basically a system that effectively converts greed into altruism.
Not always neccesary. WeWork is an example, where actual value to shareholders will be zilch, while stakeholders will be enriched. Only win win I see where WeWork shareholders are also their stakeholders. Eg. Customer is a shareholder, building owner also does his taxes and other work sitting in a WeWork facility
It sounds as if you're arguing for constrained corporatism. What are you disagreeing with? In the pursuit of shareholder (owner) wealth maximization, companies will seek to hire qualified employees through attractive wages and avoid negative publicity which could drive customers away. Customer satisfaction drives profits and ROIC, so in order to run the business the firm will treat customers well. Everything flows because of the shareholder primacy.
I have to completely disagree with your characterization of "cutthroat corporatism" and the dichotomy between that and "constrained corporatism". To take the Standard Oil example you used, Rockefeller dominated the market by _lowering_ prices and almost single-handedly created an industry (with all of the jobs and indirect benefits that come with it). Capitalism (assuming a fair political climate and robust legal system) has always been constrained by economics. You can't profit from customers without offering them products at prices that add value to them, you can't hire workers without offering them wages and conditions that are acceptable to them (given their value) and you can't do business with suppliers or banks without a reputation. The difference between today and the 19th century is that the economic conditions were different. The capital (human or otherwise) wasn't there to support the kind of wages and products we enjoy today. But the nature of Capitalism didn't change and is, in fact, the reason we got from there to here.
Cannot thank you enough for the free and accessible education, Professor.
The Business Roundtable letter was a PR move. It was an opportunity to virtue signal and pander to a "woke" news media. Maximizing long-term shareholder value should not be incongruent with "stakeholder" interests. Short-term stock increases and value fluctuations as seen in the stock market were never Milton Friedman's point when he said that a corporations purpose is to serve the interests of its shareholders...he was speaking of long-term value creation, because that is the only true value creation there is.
Really enjoyed listening to your perspective! In many of my courses, at IIM I'm taught that stakeholder benefits is the best thing that could happen. Listening to your perspective is sure to bring pragmatism to my views.
As always, loved to hear you talk :D
Professor, I am great fan of yous , it's always pleasure to hear you out. Great
Analysis. Always hats off to you!!!
Hitting the nail squarely on the head! As usual. Thank You Professor!
Shareholders provide the capital that makes a corporation possible in the first place.
Management is simply a group of _trustees_ acting on shareholders' behalf. They are literally paid with shareholder dollars, work in offices paid for by shareholder capital and are appointed by directors who are supposed to be acting on behalf of shareholders.
"Stakeholders" (customers, employees, suppliers, etc) are important to the company _because of their contribution to shareholders' long-term returns,_ not the other way around. There is no conflict between the best interests of stakeholders and shareholders as long as you understand the former is a means to the later (a company like Apple is a great example, they have been creating enormous shareholder value for years with happy employees and repeat customers). Putting stakeholders and shareholders on an even footing is just a nice-sounding excuse to evade responsibility (customers, employees, and suppliers can't fire the CEO).
Arrogant CEOs who think they can rewrite the priorities of the companies they run need to eat some humble pie or get sacked. You wouldn't tolerate an investment advisor who stole all your money and gave it to some charity he liked, why should we put up with the same thing as shareholders?
Great video! Any plans to do a video on the WeWork S1? Would love to hear your thoughts.
This is brilliant
we used a customer first, employees second, model for our business and it made us very popular. because of that we were than creating shareholder value due to customer loyalty and branding. we sold up twice increasing our value each time 150%. the fact that we were a true tech company starting in 1990 when cost barriers were very low was a great advantage, but in my country in the 1990's we did have restrictions due to employee regulations which made growth and efficiency difficult. however we were so well known for our customer service and commitment to creativity it did not hamper us as far as ultimate $value to shareholders. i do not think i could start a business today though as barriers to entry and market saturation are unsurmountable obstacle to creative innovative industries.
I’m surprised this channel doesn’t have more views
Please make a video on WeWork 🙏🙏
Thank you for sharing your thoughts with us.
The slides are not available
Presentation materiaql not availabe in your library. Thank you Professor
Sorry. Fixed now.
Professor , do you prefer the second edition of security analysis or the sixth
I know that this will be considered sacrilegious but I don’t much care for any of the editions. It applies too much of a fixed income mindset to equity valuation. A stock is not a bond with price appreciation.
It has always seemed strange to me that "maximize value to shareholders" has become some kind of ultimate guarantor of good business practice regardless of ethical or societal implications (drug pricing/polution/debates about regulations/employee wages). Almost in a religious sense, as if CEOs are to be viewed as helpless subjects to some transcendental power "we couldn't make any other choice because we have to maximize shareholder value". This should be a very interesting topic/debate in the coming decades. Thanks for your take on this.
Link in the description not working.
Thank you so much
I disagree. What's good for one group can also be good for EVERY other groups.
It's true that businesses wants to charge customers the highest price possible and pay employees as a little as possible but competition eventually will drive prices towards economic equilibrium. Capitalism is a system that rewards innovation and creativity. That's why capitalistic countries are so successful. It's basically a system that effectively converts greed into altruism.
Not always neccesary. WeWork is an example, where actual value to shareholders will be zilch, while stakeholders will be enriched. Only win win I see where WeWork shareholders are also their stakeholders. Eg. Customer is a shareholder, building owner also does his taxes and other work sitting in a WeWork facility
It sounds as if you're arguing for constrained corporatism. What are you disagreeing with? In the pursuit of shareholder (owner) wealth maximization, companies will seek to hire qualified employees through attractive wages and avoid negative publicity which could drive customers away. Customer satisfaction drives profits and ROIC, so in order to run the business the firm will treat customers well. Everything flows because of the shareholder primacy.
I have to completely disagree with your characterization of "cutthroat corporatism" and the dichotomy between that and "constrained corporatism".
To take the Standard Oil example you used, Rockefeller dominated the market by _lowering_ prices and almost single-handedly created an industry (with all of the jobs and indirect benefits that come with it).
Capitalism (assuming a fair political climate and robust legal system) has always been constrained by economics. You can't profit from customers without offering them products at prices that add value to them, you can't hire workers without offering them wages and conditions that are acceptable to them (given their value) and you can't do business with suppliers or banks without a reputation.
The difference between today and the 19th century is that the economic conditions were different. The capital (human or otherwise) wasn't there to support the kind of wages and products we enjoy today. But the nature of Capitalism didn't change and is, in fact, the reason we got from there to here.
make a diss track/video on wework ustaad ji
$VEGN