UlrichThe goal should always be to improve shareholder value, but not to the exclusion of everything else. Increasing dividends by reducing spending on safety, for example, would be stupid. Ditto for scrimping on employee wages and benefits, or anything else that would undermine the longterm prospects of the business. There's a big difference between longterm value creation and short term looting of assets to assuage an investment house that looks only at the next quarter.
One is a way of 'growing the business' the other is the Hedge Fund operations manual.
Never too old to have a happy childhood!
The goal should always be to improve shareholder value, but not to the exclusion of everything else. Increasing dividends by reducing spending on safety, for example, would be stupid. Ditto for scrimping on employee wages and benefits, or anything else that would undermine the longterm prospects of the business. There's a big difference between longterm value creation and short term looting of assets to assuage an investment house that looks only at the next quarter.
It would be great if this was really true. But take a look at UP’s Unified Plan 2020, talk to laid-off railroaders in Hinkle OR and other yards, talk to shippers frustrated with declining service as short-term returns are the new gold standard and long-term capital investing in growth (= potential market share increases) is slashed, and I think it is BS. Employee welfare???
For another perspective that I think offers a more somber, and more reality-based view, see:
https://www.ted.com/talks/nick_hanauer_beware_fellow_plutocrats_the_pitchforks_are_coming/transcript
I can’t wait to hear the flaming on this about how liberal TED talks are, I’m a liberal, etc. Not so; I’m an entrepreneurial Republican involved in industrial design, development and construction, and I make money when industries are expanding and investing. And things need to change. I hope this really is the start of needed change. But let’s see how UP changes: the past year has not been about corporate responsibility beyond short-term shareholder/institutional investor returns. And certainly not about value to employees.
tree68 Euclid But it might be better to just come out and say it. But to do so would be to admit that it was happening, even though a lot of people already realize that to be the case. As with EHH, it's been put forth as how to improve the business, with no little or mention of raiding the treasury.
Euclid But it might be better to just come out and say it.
But to do so would be to admit that it was happening, even though a lot of people already realize that to be the case.
As with EHH, it's been put forth as how to improve the business, with no little or mention of raiding the treasury.
And them just mentioning all those good things sounds like any other corporation. They all say that. Even EHH said that. So I would say that the position document fails to make the sale because it does not explain why they are unique.
The goal should still be shareholder value, but in the long term, not the next quarter. That is how a privately held company like BNSF can prosper. I used to own a good mutual fund called Baron Asset, which was managed by Ron Baron. He made a point of buying for the long term. I got out of it when he semi-retired and his replacements started chasing profits.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
Milton Friedman helped start it all back in 1970.
umich.edu/~thecore/doc/Friedman.pdf
Jeff
CSSHEGEWISCH There is also the possibility that the members of the Business Roundtable see that the political climate may be changing and they are trying to head off the imposition of stricter financial and business regulation.
There is also the possibility that the members of the Business Roundtable see that the political climate may be changing and they are trying to head off the imposition of stricter financial and business regulation.
Correct. Until now, their group has successfully pushed for increases in CEO compensation. In the past 40 years it has increased by 940% (1007% by another measure) while a typical workers' pay increased by 11.7%. The times may be changing as people realize that.
tree68 Methinks that improving shareholder value is a primary goal, but should not be the only goal. There have been too many cases where the sole purpose of management has been to drive money to the bottom line where it can be harvested to the exclusion of long-term improvement. Ie, loot and run.
Methinks that improving shareholder value is a primary goal, but should not be the only goal. There have been too many cases where the sole purpose of management has been to drive money to the bottom line where it can be harvested to the exclusion of long-term improvement.
Ie, loot and run.
I think that is exactly what they are talking about. But it might be better to just come out and say it. Otherwise, all those stated objectives are exactly what every corporation says they are about. And yet this document seems to present itself as though the signers are taking a revolutionary stand.
MikeF90According to Marketwatch: "The heads of nearly 200 U.S. companies said Monday they are committing to a move away from the idea that the main purpose of a company is to maximize shareholder value, marking a break with a long-held conviction."
I think they have bought into a false premise if they think the idea has been that the main purpose of a company was to maximize shareholder value to the exclusion of all those other good vibe plattitudes.
Still, if there’s no margin, there’s no mission.
I read this earlier after a buddy forwarded me the link.
I’ll be cautiously optimistic but; only time will tell if these folks actually walk the talk.
According to Marketwatch: "The heads of nearly 200 U.S. companies said Monday they are committing to a move away from the idea that the main purpose of a company is to maximize shareholder value, marking a break with a long-held conviction."
Link to published statement with signatories: https://opportunity.businessroundtable.org/wp-content/uploads/2019/08/Business-Roundtable-Statement-on-the-Purpose-of-a-Corporation-with-Signatures.pdf The only class 1 RR CEO I could find on the list was Lance Fritz of Union Pacific. When I noted that the CEOs of Comcast and AT&T were also listed, that triggered my BS/PR warning receiver.
It remains to be seen what actions will be taken and how Wall Street will react.
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