[Stangkiller]

Originally Posted by Joecooool

The same insidious incentives arise when executives start managing to meet analysts' expectations rather than managing the business itself.

The ultimate irony

The ultimate irony may be that the allegiance to shareholder value has caused the very problem it was intended to cure: enriching senior executives at the shareholders' expense.

Given long enough time on the horizon, the interests of the company, the investors, and the executives would ultimately align. But with an average chief executive tenure of four and a half years, and an average stock holding period of only four months, short-term pressures exacerbate the focus on manipulating the stock rather than building the business. The increase in high speed trading and the proliferation of hedge funds and private equity firms has further increased the short-term pressure for financial engineering rather than long-term value creation.

The biggest cost of all, however, is neither to the company nor its shareholders, but to our society and our planet. The ubiquitous mandate to maximise short-term shareholder value has driven a deep wedge between business and society. The long term success of any company depends on the health and wellbeing of its employees, customers, and the communities in which it operates.

Unfortunately, these factors do not affect the quarterly earnings that drive analysts' expectations. CEOs who manage the stock, rather than the company, have little reason to think about the social and environmental consequences of their actions. And the result – whether in oil spills or credit derivatives – brings devastation far beyond the company's own shareholders.

But a small, yet growing cadre of sophisticated business leaders are beginning to expand their focus beyond merely maximising shareholder value to creating shared value. They are building strong companies and healthier societies at the same time; making money by reducing their environmental footprint, meeting the needs of low-income populations, and finding innovative, profitable solutions to social problems. One might expect that such an "altruistic" approach would diminish shareholder returns: instead, it keeps corporate leaders focused on the most powerful emerging trends and the long term fundamentals of their businesses.

As investors like Generation Investment Management are increasingly discovering, maximising shared value is the best way to maximise shareholder value.

Of course you have issues with stock options. IT's that whole rich thing you really have a problem with.

The whole goal of a business is to make money, and by making money a company increases it's value. You do that by making long reaching goals, and placing yourself into a position to realize those goals. You do not get there by giving the house to the employees. Sure certain measures must be taken to ensure a stable workforce, but a workforce is merely a piece of a profit center. Sure some short sighted managers are there only to maximize their stock options, however if properly managed the stock options are based on long term goals to help minimize this effect.