Maximizing Shareholder Value Is Misleading

Every textbook of Economics told you, that the goal of a company should be to maximize shareholder value.

It is totally misleading, as said by Steve Denning.

You have two ways to raise the “Shareholder Value”: one way is to improve the real-market performance. You sell more, and earn more. The other way is to change people’s expectation about your company. If people believe you will perform well in the future, the stock price of your company will rise.

Because improving real-market performance is long-term work, and is so hard and so slowly, many managers choose to work on simply raising expectations instead.

“CEOs and their top managers have massive incentives to focus most of their attentions on the expectations market, rather than the real job of running the company producing real products and services.”

As Peter Drucker said, They forget:

“There is only one valid definition of a business purpose: to create a customer.”

THE END

One thought on “Maximizing Shareholder Value Is Misleading

  1. Question is not so much what the true goal is, because I like to believe top executives know what a company is supposed to do. The question to me is the ways they employ to chase those goals.

    “To create a customer” is often mistaken for “make you buy no matter what”. Process is frequently the problem.

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