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This is a pretty long article and I'm still reading it but what do you guys think . . . is maximizing shareholder value a dumb idea? Why or why not?
1 posted on 11/19/2012 12:39:03 PM PST by ksen
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To: ksen

Comparing “football” with commerical business transactions will not work - although the objective is still to “win,” the definition of “win” for each activity is very different.


2 posted on 11/19/2012 12:45:55 PM PST by Ken522
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To: ksen
This would require me to write a very long book. However, the writer confuses a few concepts. maximizing share-holder value is a fiduciary duty of any corporation. it's not an option. HOW we maximize value is optional. Some do so by focusing on short-term stock gains and profits, over long-term company products. Some do so by focusing on quality, building loyal customers and trusted brands. Some focus solely on pricing opportunities and cost. Some do so through social efforts — going green, etc. All of these corporate strategies are aimed at Maximizing shareholder value — just in different ways and over different periods of time. In so doing, they give prospective shareholders a menu of investment opportunities, so that prospective shareholders could invest in different companies with different strategies to diversify their holdings.
3 posted on 11/19/2012 12:50:50 PM PST by Iron Eagle
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To: ksen
All I know is that if a sentence contains the phrase "maximizing shareholder value" in it it is probably a lie.

Companies should be making profits, managing their trademarks, producing desirable products and services at prices the market will bear.

If all or most of that is happening then shareholder value will necessarily follow in the short run and over the long haul.

However, if business owners focus solely or primarily on shareholder value then they are more likely to engage in strategies that may bump up short term value at the expense of long term success.

4 posted on 11/19/2012 12:51:47 PM PST by who_would_fardels_bear
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To: ksen
Though I didn't read the article, I reject the premise that a CEO of a legitimate business who happens to discuss earnings expectations is analogous to a coach discussing expectations of their team.

For starters, CEOs of public companies have a fiduciary responsibility to their shareholders. Shareholders invest in good faith, and CEOs are supposed to reveal their expectations for achieving success in future market conditions. Shareholders can take the CEO at their words, and stay invested, or they can take their money elsewhere.

Sports coaches are under no such responsibility. They can tell you how they expect their team to perform, but they have no obligation to fans or bettors. Coaches have an obligation only to their general managers or team presidents.

I would also say that where CEOs have an obligation to earn at least as much as their reasonable competitor, in terms of return on investment, coaches are measured by wins and losses. (I'll let others decide which is more difficult.)

SO to the original question, as a shareholder, I'm hopeful that a CEO maximizes their profits, keeps costs reasonably low, and does whatever they can to maximize my value. Otherwise, what's the point of investing?

6 posted on 11/19/2012 1:03:05 PM PST by Lou L (Health "insurance" is NOT the same as health "care")
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To: ksen

The writer simply doesn’t understand the word “value”, and so wastes his and his readers’ time.


11 posted on 11/19/2012 1:32:00 PM PST by Taliesan
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