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Ethix Forum – Issue 30

Is maximizing shareholder value the right objective and purpose for business? Why or why not?

I do not believe that maximizing shareholder value is the utmost objective of a company. A business is a group of people who are banded together to deliver a good or service for a profit. A modern day corporation is composed of many stakeholders who do not have an immediate, daily contact with the business for the most part. In these circumstances, for the long term viability of the corporation, the utmost objective should be to maintain the group actually doing the work at its most efficient and viable level. If this is done the stakeholders will be rewarded with a stable, long term and growing investment.

Robert Ernst

Maximizing shareholder value should be a fundamental principle for any publicly-traded, corporate entity. There is nothing wrong with the shareholder value model as long as senior management acts responsibly, making the right choices and setting the right priorities. This means remaining focused on delivering innovative products, providing consistent quality service to customers, and practicing sound fiscal management. In order to be used successfully as a strategic business objective, maximizing shareholder value must be viewed as the end result, a by-product, of doing everything else right.

Unfortunately and in too many cases over the past 5 years, maximizing shareholder value became an obsession for too many senior executives in leadership positions. This led to short-term thinking, blurred vision, poor decision-making and unrealistic expectations. As a result, people began to measure a company’s value based upon the company’s daily, even hourly, stock price. This is largely what led to the train wreck we have all witnessed on Wall Street.

Harold “Bud” Boughton
Author of The Missing Piece
Greenwood, IN

Shareholder value has a different meaning to different people. Unfortunately, the investment banker or Wall Street usually describes shareholder value as the monetary total return to the investor. They are compensated and base their success or career on being able to evaluate a business and advise their investment clients as to a company’s probability of gaining value as an investment. And of course, the sooner the better. Long- term to many is measured in months rather than years.

But I believe shareholder value is much more. I believe a company needs to return value to four constituents: Customer, Employees, Community, and Shareholder.

A company needs to balance each of the above. If the customer is not satisfied over the short-term or long-term, by receiving a fair product or service for a fair price, the business will suffer and have a negative effect on the shareholder, the employees and the community where they operate. If the employees are treated unfairly or are not productively employed, morale will suffer, productivity will decrease and profits will fall, therefore again harming each of the constituents. I strongly believe that a successful company, especially a mature company, has an obligation to give back to the community. It’s just good business. If the community where your employees raise their families is not a healthy place to live, the employees lives will be negatively affected and/or you will lose the employees you can least afford to lose. The shareholder will get the highest value if the customer, employees and community are valued and treated fairly.

Roger Eigsti
Corporate CEO, retired
Seattle, WA


I am convinced that the unchecked power vested in business in the US capitalistic economic system is a fertile ground for the financial mischief we have recently witnessed. The players see it as a game, with personal wealth as the scorecard. They approach the business of business with “amorality” as the basis of their behavior; ethics and morals are too abstract and unmeasurable. They are checked only by regulation, and they obstruct its establishment with great energy. When finally regulated, they find in it loopholes with zeal; an endless game of move and countermove.

Yes, there are organizations that are exceptions, and I applaud Ethix for seeking them out and providing a platform from which to articulate their values. But in the nature of the game we have allowed, these leaders are putting themselves at an economic disadvantage in business performance, and they are open to criticism by shareholders if ownership is publicly held.

Peter Morton
Corporate Executive, retired
Bellevue, WA

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