Dear Ethix – Issue 30

More on Shareholder Value

I just finished [Al Erisman’s May/June “Tech Watch” column] “Dealing with the Failure of the Shareholder Value Model.” You should consider developing this into a book. American business needs to lead a worldwide paradigm shift as it relates to business and the effect of business on cultures, persons, and the environment. Not only is the short-term focus on shareholder value bad business in the long run, it sacrifices all other values in the process, invites political back lash in the form of revolutions, government intervention, and union activism — none of which, by the way, is “good for business.” Thank you, for stimulating further thought on this issue.
Patrick Patterson
Stanwood, Washington

I agree with you 100%, but you said it much more articulately than I could. I’m also sure that about 95+% of our employees agree with you. You know, there are times when we need to teach our employees, but there are other times when we just need to listen to them. I am regularly giving some lectures to engineering school juniors at Arizona State University as a part of my Exec Focal connection down there. I would appreciate your permission to use copies of this piece as a “discussion starter” with these kids. I would, of course, credit the magazine.

I also really liked the Getty Images “7 Leadership Principles.” Keep pushing on this stuff. The magazine gets better with every issue!
Ronald L. Bengelink
Renton, Washington

As a moderately active investor I enjoyed reading Dr. Erisman’s article but I have a slightly different perspective. When an executive states that his objective is to manage (or improve) shareholder value, I do not interpret that to mean that he wishes to manage the stock price. It seems to me that shareholder value is equivalent to a measure of the value of the company. Proponents of the concept of an efficient market have suggested that stock price correlates with value but that concept has been refuted effectively on numerous occasions, e.g., Irrational Exuberance by Robert Shiller. If an analyst issues a buy recommendation on a stock, that may affect the share price but not the value of the company. If the executives of Enron or Tyco International engage in fraud to make the company look better than it is, they raise the stock price and lower the company value simultaneously.

Determining the value of a company is the holy grail of fundamental investing. It is very difficult to determine a clear value for a company but some of the things discussed by Dr. Erisman enter in to that determination. From the quote by Blake Nordstrom in the article “Only when we got our focus back where it belongs, on our employees and our customers, have we begun to restore shareholder value.” The goal of growing shareholder value had not been the earlier problem. The problem had been how to do it, which Mr. Nordstrom appears to have figured out.
Stan Jensen,
Los Altos Hills, California

Profession vs. Company?

I read Ethix from perspective of a licensed professional engineer and nuclear safety engineer in the U.S. Department of Energy. I get to deal with issues like a world awash in nuclear weapons material in my profession. In my employment, I get to face issues like those faced by “Baghdad Bob”: to speak the truth to the “powers that be” is a one-way ticket to career oblivion. Not a very hopeful combination. Ethix seems to be in obstinate denial of the realities employed members of recognized professions can face in trying to reconcile their obligations to their professions and the public . . . [with their obligations to] employers whose tacit (or not so tacit) policy to concerned employees, members of professions or not, is “the only right a concerned employee has is the right to seek employment elsewhere.” For instance Jonathan Klein’s company likely employs members of several recognized professions. Is there anything in Getty principles that recognizes the obligations those employees have to their professions regarding their workplace competency and ethics? No. Ditto every other company you have highlighted.

Professional societies talk a great game about professional ethics to everyone — except the employers of their members. Then they are mute, as are their members, by and large. And Ethix is helping enable it.
Joe Carson, P.E.
Knoxville, Tennessee


I am a systems analyst but one of my majors in college was theology, with my primary interest in ethics. I was surprised to see your “Oxymoron” ad in the 4.21.03 issue of InfoWorld given that I have just heard a story on NPR and read an article somewhere stating that a business’s only obligation is to its shareholders; no responsibility to society, environment, humanity, etc. I look forward to seeing your take on it. What got you started? It is always interesting to hear what makes people give up the security of working for someone and strapping yourself to the front of a ship!
Kurt Schultz
Huntsville, Alabana