Maximizing Shareholder Value

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Maximizing Shareholder Value

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On the face of it, share­hold­er value is the dumbest idea in the world. Share­hold­er value is a res­ult, not a strategy… your main con­stitu­en­cies are your employ­ees, your cus­tom­ers and your products. Man­agers and investors should not set share price increases as their over­arch­ing goal. … Short-term profits should be allied with an increase in the long-term value of a com­pany.”
This state­ment came from the one per­son who might have been the best CEO ever to run the trick of max­im­iz­ing share­hold­er value. It was Jack Welch who said this to Fin­an­cial Times in 2009.
When I came to STORA (now Stora Enso) in 1996, the first words I heard from the CEO Lars-Åke Hel­gesson were that his job was to increase share­hold­er value. To me this was back then a major sur­prise; I thought that the products were the core. Well, that’s what it all comes back to in the paper industry – tonnes! There was soon a chick­en race between the newly formed Stora Enso and Inter­na­tion­al Paper. IP had always been the biggest of them all – in tonnes. This race con­tin­ued sev­er­al years, seem­ingly res­ult­ing in big bonuses for the kami­kaze pilots Jukka Härmälä and John Dillon.
Early on, I star­ted to believe that it was the cus­tom­er that should be in focus. This was how­ever not often a stand­point we saw in lead­ers of the paper industry. They often referred to their busi­ness as “the industry”, and were regarded as highly arrog­ant by most of their cus­tom­ers. This atti­tude was present on almost all levels, the stand­ard answer to a com­plaint on poor per­form­ance in a print­ing press being it is not paper related. An answer that actu­ally nev­er res­ul­ted in happy cus­tom­ers.
Recently, there has been some improve­ment in the atti­tude from paper com­pan­ies. I have even heard the concept of “cus­tom­er suc­cess” being men­tioned by at least one CEO. It may nev­er be to late to change…

For more com­ments on share­hold­er value not being a wise strategy, please read Steve Denning’s column in For­bes: The Dumbest Idea In The World: Max­im­iz­ing Share­hold­er Value.


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