the cult of shareholder value maximization...good phrase, that.

[acroyear]

I, Cringely » Blog Archive » Neutron Bomb - Cringely on technology:

Newsweek recently reported that IBM, HP, Accenture, and others are finding it profitable to detach from the United States (even patenting the process).

“IBM is one of the multinationals that propelled America to the apex of its power, and it is now emblematic of the process of creative destruction pushing America to a new, less dominant, and less comfortable position,” Newsweek said.

This is the HR equivalent of a neutron bomb, which kills people but leaves structures unscathed. So all these companies will be leaner and meaner — mean enough that there may be nobody left to buy their products.

It comes back to the common perception that the sole function of public companies and their CEOs is to “maximize shareholder value” — a phrase that is interpreted to mean “maximize next quarter’s earnings-per-share.” This philosophy works beautifully with the slightly less than four year average tenure of a U.S. public company CEO. Long before the effects of these bad decisions can show the CEO has bailed, descending beneath his golden parachute toward some retirement heaven.

Where did this cult of shareholder value maximization come from? And who says that’s the prime directive and nothing else ought to matter? Not me. In fact it is bad policy both for the companies and for our society in general. [...]

Companies like IBM that take this position are hurting America.

And someone came up with a brilliant Henry Ford story:

Henry Ford pissed off the rest of his capitalist friends when he raised the wages of his workers. He said why: they could then buy his car. Today’s capitalist isn’t even as smart as Henry Ford.

Comments

[voltbang.livejournal.com]

It comes back to the common perception that the sole function of public companies and their CEOs is to “maximize shareholder value” — a phrase that is interpreted to mean “maximize next quarter’s earnings-per-share.”
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When the shareholders believe it, and can vote the CEO out for failing to do so, it becomes the reality. When members of managment believe it, and perform with that goal in mind, and drive everyone down the chain to do so, it is what the company does overall.

When I was closer to purchasing for the large internet provider, we always made large purchaes close to the end of the vendors quarter, because they were desperate to sneak a few more sales into this quarter, even if they had to give us incentives to do so. Destructive to the company over time, but it makes for better numbers right this instant.