Maximizing Shareholder Value


Hey Cullen,

Not trying to be difficult or nit picky here, just an observation. From what I’ve understood of the MSV debate, the debate really comes down to where MSV falls on a corporation’s priority list. While I think your statements and counter-points are good and necessary in a world that seems increasingly hostile to traditional capitalism, it also seems as though you may have side-stepped the primary criticism.

The primary critique of the MSV meme that I have observed is that corporations pursue MSV at the expense of their customers and employees. I think there is some evidence to support this. Pay for line-workers at large corporations has virtually flat-lined for several decades, even while companies have consistently raised dividends and increased buybacks. The rewards of capitalism are increasingly going to passive owners, rather than the active workers who make some of the greatest contributions to capitalism today.


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Posted by (Questions: 11, Responses: 10)
Posted on 08/18/2017 12:47 PM
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Starting in 2003-2004, US corporate profits per employee hour worked doubled, after having stayed constant for the preceding 50 years. This coincides with a surge in buybacks. So if you rely on earned income, every buyback announcement is an attack on your income. But if you rely on unearned income, every buyback announcement is a cause for celebration.

It’s that simple.

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Answered on 08/18/2017 1:27 PM
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For the CEO to focus squarely on shareholder value is not a good idea. My CEO focused on adding value to the company. If we did that, then shareholders would understand that the value of their own investment would increase over the long-term. The ups and downs day-by-day, quarter by quarter etc. that is generated by speculators is something that should be ignored as much as possible. Here is how he put it.

“Creating Value in a Company”
Robert A Swanson:
“The scientists were creating value in an organization, and we had structured it in such a way that they got to share in the value that they helped create. They got paid a salary for going to work everyday, but if they created more value in the company, then they had a piece of that value. I think that’s still the right way to think about it.

“There’s a discussion now, “Okay, I’ve got this idea. I’ll get a few scientists together, and I’ll hire people, and I’ll crank it up, and I’ll raise more money, and I’ll get the public offering. Well, look at how much money I’m crank it up, and I’ll raise more money, and I’ll get the public offering. Well, look at how much money I’m worth.” It’s putting the cart before the horse.

“If you create value in the organization by discovering a new drug, building an outstanding team of people, getting the product to the market–whatever it is that creates more value–then eventually that value gets reflected in the price of the shares of the company. The market goes up and down. You’re building value all the time. Maybe the market doesn’t reflect it one year but eventually, it does. Maybe it over-reflects it, but as long as you focus on building the value of the company eventually that gets reflected in the stock price. That’s the way I’ve always talked to people about it, and I think it’s the right way to think about it.”

“I was struck, when I first came from the university to Genentech to see the very tangible presence of corporate value through the monitors which seemed to be in just about every unit, showing what the stock is doing.”

“I may have a somewhat naive approach to this, but I think most people don’t do things for money. If they do it just for money, rather than the love of it and the desire to do something, then they’re probably not as good at whatever it is. I think people by and large do things for other reasons.”

Co-Founder, CEO, and Chairman of Genentech, Inc., 1976-1996 03/22/2007 08:57 AM
https://content.cdlib.org/xtf/view?docId=kt9c6006s1&brand=oac&doc.view=entire_text Page 80 of 119

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Posted by (Questions: 27, Responses: 285)
Answered on 08/18/2017 6:33 PM