The Holy Grail of providing Shareholder Value
By
In the world of the listed companies, that is those listed on various stock exchanges, the term shareholder value tends to take on disproportionate significance. All eyes are constantly focused on ensuring that shareholders are kept smiling.
It doesn’t take much to realise that this means that the company is gutted and robbed of all value to ensure that shareholders receive their return and more. If one doubted the validity of this statement it shouldn’t take long to cast ones eyes around and see how many large companies went belly-up or close to it in this recession. Whole industries took a nose dive.
One could of course argue that shareholders are the man in the street and therefore in a way the ordinary person has benefitted from senior managements worship at the altar of profits at all cost.
Regrettably this is no longer the case either. Sure there are some shareholders of companies who are what one could call, representing the man in the street. However, the bulk of the shares traded on any stock exchange where ever situated is held by a small number of prominent investors or institutions.
Who owns the big institutions?
Good question. It’s the very same big shareholders and interests. It’s one big happy family. One can quite comfortably believe that a tiny number of folk own the bulk of the wealth whether in America, India or South Africa.
72% of the wealth in the USA is owned by 10% of the people.
Should it therefore come as any surprise that the senior management and CEOs of these companies represent the families of these wealthy individuals. People living by the motto of let’s have our own people look after our money.
A further consequence of this old boys club running the show is the fact that very few women make it to the top. Within these money owning families the male succession principle is still strictly observed.
Not only succession planning is affected by this in house little club, it is also the remuneration policies practiced and supported. One would imagine that if shareholders required value to be passed onto them then enormous executive salaries surely would be the first to get nipped in the bud. After all if millions are paid to a few executives there’s less to distribute amongst shareholders.
This would be true if the shareholders were uninterested people. However, they are not. They are family or friends. In other words their majority shareholders are actually people from the same club. It is easily understood that regardless of the performance of the economy or the company, CEOs are still going to benefit from hefty earnings.
Who ends up paying for the demise of the company or the dip in company profits? Not senior management. As we have seen in recent months the real losers have been the ordinary folk. Even though the stock exchanges have recovered to some extent and the companies have posted some profits, in fact better figures than anticipated, the blood bath of people losing their jobs has not stopped.
Will anything change during this recession?
Not really. It will be business as usual for the people at the top and suffer and hardship for those at the bottom.
Hi, Andrew Rondeau here. I have over 25 years of hands-on management experience within a diverse range of different industries including retail, manufacturing, finance and IT. I’ve managed teams of up to 1000 individuals, managing numerous $multi-million projects, mergers, acquisitions and company sales.
Very interesting post, it is quite a shame that 72% of the USA’s wealth is owned by 10% of its population – this is such an unequal spread. Thanks for the interesting read.
72% of the wealth in the USA is owned by 10% of the people – roll on the days when you’re saying:
10% of the wealth in the USA is owned by 72% of the people.
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