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If you ever start your own company - trust me, you'll be extremely interested in maximizing shareholder value. You may also want to satisfy customers and build

If you ever start your own company - trust me, you'll be extremely interested in maximizing shareholder value. You may also want to satisfy customers and build amazing experiences but as the owner of the company, you will also care very much about the value of your shares.

yuhong 15y ago
Yea, the problem is that "shareholder value" is defined as stock price, which is flawed.
- dpe82 15y ago
  What other metric do you use? A warm fuzzy feelings index? The problem is "shareholder value" is defined using a measure of TODAY's stock price, which is highly volatile and subject to really minor changes in quarterly reports. So companies tend to spend an inordinate amount of resources trying to level out the volatility of their short term stock price by doing whatever they can to meet quarterly expectations, which leads to misallocation of capital. A better measure might be the potential value of a stock some number of years out, which can be roughly measured using stock options trading if the options markets have access to enough data. That type of data would include things like customer satisfaction metrics, R&D spending, etc. (ie the types of things Steve Jobs optimized for).
  - yuhong 15y ago
    Yea, this is exactly what I mean.
pedalpete 15y ago
I have started two companies. I'm not suggesting that the value of the company isn't important, but I've seen many times where the quality of the product drops due to a focus on shareholder value, resulting in a drop in that very value they were trying to protect.
- philwelch 15y ago
  There's definitely a cognitive indirectness here, in the same way that it's in one's long term self interest to act unselfishly, but it's rather incoherent to say that it's wrong to focus on shareholder value because it damages shareholder value. If you want to maximize shareholder value and you're smart enough to realize that focusing on product quality is the way to do that, you'll focus on product quality.

yuhong 15y ago

Yea, the problem is that "shareholder value" is defined as stock price, which is flawed.

dpe82 15y ago
What other metric do you use? A warm fuzzy feelings index? The problem is "shareholder value" is defined using a measure of TODAY's stock price, which is highly volatile and subject to really minor changes in quarterly reports. So companies tend to spend an inordinate amount of resources trying to level out the volatility of their short term stock price by doing whatever they can to meet quarterly expectations, which leads to misallocation of capital. A better measure might be the potential value of a stock some number of years out, which can be roughly measured using stock options trading if the options markets have access to enough data. That type of data would include things like customer satisfaction metrics, R&D spending, etc. (ie the types of things Steve Jobs optimized for).
- yuhong 15y ago
  Yea, this is exactly what I mean.

pedalpete 15y ago

I have started two companies. I'm not suggesting that the value of the company isn't important, but I've seen many times where the quality of the product drops due to a focus on shareholder value, resulting in a drop in that very value they were trying to protect.

philwelch 15y ago
There's definitely a cognitive indirectness here, in the same way that it's in one's long term self interest to act unselfishly, but it's rather incoherent to say that it's wrong to focus on shareholder value because it damages shareholder value. If you want to maximize shareholder value and you're smart enough to realize that focusing on product quality is the way to do that, you'll focus on product quality.