Is shareholder value all it is cracked up to be?

As an entrepreneur I have an obsession with shareholder value, yet there is so much more to judging the value of a company. Shareholder value is mostly a reflection of what has happened in the past with a random judgement of what may happen in the future.

In the early nineties there was a lot of talk about stakeholder value and I am sorry that discussion seems to have died down. When running a company I try to keep an eye on all stakeholders, including customers, suppliers, employees, management and of course the shareholders. This is a very difficult balance to keep and it is even more difficult to measure. It is easiest to measure shareholder value, which is probably the reason why it remains firmly on top.

Barclays managed to destroy substantial value in a very short period of time and this had nothing to do with their financial performance. Nothing changed on their balance sheet, the leadership changed and the brand has been severely and possibly permanently tainted. What was not shown anywhere is that many people did not like the leadership in the first place, and these are the very people who put their salaries, their savings and their trust in the bank.

So why was this not considered? Well simply because the single focus was shareholder value and it was the perception that this depended almost solely on the big bonus earners – the ‘gambling’ operations. Barings had the same problem. The greed at the top allowed the Directors to simply ship more and more cash into the Singapore gambling centre, until finally the black hole was recognised. Many people knew the problem existed but Barings is gone.

In today’s world we will try to address the most recent banking debacle through more regulation, but again this will not work. Someone told me that Barclays has 3,000 compliance officers. And not one of these bright sparks told the bank they should not manipulate interest rates? Oh, they did not need to as Bob already knew that. Why else would he take notes of a telephone conversation about it? He very rarely did this so he clearly knew he should not allow this. So what is the purpose of these 3,000 highly educated people or in fact of the regulations?

Had Barclays entered the 21st century it probably would have been able to get some kind of valuation from stakeholders through Facebook Likes, or Tweet content or Google +1, or whatever the flavour is at the moment. This would have been much more efficient, than any regulation, the offsetting compliance officer and the final decline in brand and shareholder value. After all, it did not take the FSA 5 years to figure it out – it was coming out through the market so Barclays had to come clean and soon the FSA and the Bank of England will have to also.

What a sad destruction of brand value, and a disregard of stakeholder value.

As time goes on things like Facebook Likes will increasingly become measures of the underlying value of a company – the value we cannot see yet through the financials. As the stakeholders make their feelings known, hopefully through something a little more sophisticated one day than a Like or Dislike, shareholders and executives will increasingly have to take notice.

The stakeholder valuation is already happening in the crowdfunding arena. Regulators are fretting all over the place as they will have little grip on this market, but relax folks – the crowd does have a grip and will exercise this grip much more efficiently, more timely and more ruthlessly than you ever can!

1 comment for “Is shareholder value all it is cracked up to be?

  1. eduard
    17 July, 2012 at 09:46

    Like! :)

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