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Title: The End of Shareholder Value : Corporations at the Crossroads
ISBN: B00005Q5JA
Author:
Allan A. Kennedy
Publicate Date: 2001-08-30
Publish: 2001-08-30
List Price: $4.95
Average Customer Rating: 3.5
Format: Digital
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Amazon Lowest New Price: $4.95
Amazon Merchant Price: $4.95
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| Customer Review: |
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1: exercise in fuzzy thinking
This book is an exercise in fuzzy thinking. Kennedy is totally confused about what shareholder value is. He is confusing shareholders' legitimate desire to get a meaningful return on their capital (enough to compensate for the risk they assumed) with management's unscrupulous attempts to increase reported EPS over the short term. Whatever contributes to the former creates shareholder value. Whatever contributes to the later, doesn't necessary do so. The puruit of shareholder value has nothing to do with unscrupulous management. But that's not all.
He doesn't understand the mechanics of a modern capitalist economy nor does he understand the interactions among different groups in society and the fundamental principals of business valuation and corporate finance.
I should also mention his constant misinterpretation of facts: Kennedy is idealizing the 19th century entrepreneurs as men who started their businesses only for the sake of the common good. Wealth, according to him, was only a byproduct of their charitable attempts to improve society. I doubt if that was true. Being open about one's own greed was not an acceptable social behavior in 19th century. Subsequently, men of wealth tried to come up with noble excuses for their profit seeking.
Kennedy argues that maximizing shareholder value ignores employees, customers, suppliers, communities and the government. If that was true then everything we know about modern Economics must be wrong!
Let's start with employees. Do they really suffer from shareholders' attempts to maximize their own profit? If shareholders didn't care about profit, they wouldn't start the business to begin with and without the business, employees would have nowhere to work. Conclusion: profit seeking (maximizing shareholder value) creates value for workers. The alternative would be a centralized communist economy where government runs all businesses. Business ventures are not evaluated by the profits they could generate but by the amount of people they would employ (more is better).
What about governments? The purpose of government is to serve the people. Government has no other purpose. Therefore we can not say that corporate behavior harms government unless that behavior harms Society. Harm done to a government by a corporation that doesn't harm Society is no harm at all. An example would be any legal attempt to minimize taxes. It harms government because it decreases the amount of funds available to expand bureaucracy but it benefits Society because businesses can allocate capital more efficiently than governments.
What about suppliers? Are they being harmed by the "shareholder value menace"? Suppliers are also businesses with shareholders of their own. Each and every company is both a buyer and a supplier. If a company is being squeezed by its customers, it can always attempt to do the same to its suppliers.
It is true that many communities, many local and national governments, and many workers end up abused by businesses (big and small). It is also true that many businesses are being endlessly abused by militant labor unions and governments. It doesn't follow that business owners should be prevented from seeking lawful ways to increase their wealth.
Kennedy even goes as far as to argue that increasing shareholder value harms shareholders. Here logic fails him completely. The discussion of GE is an illustrative example. Although Kennedy admits that GE's cost cutting initiatives increased value for current shareholders, he claims that the inflated stock price at the end of 1999 will prevent those who buy today (1999) to realize similar gains. True. So what? No one is being forced to buy overpriced common stock. People suffer their own ignorance about corporate valuations. Do we need to hold CEOs responsible for holding their stock prices low so that anyone, who buys a share of common stock at any time, can have a decent return?
Wall Street does not hold CEOs responsible for the stock price of their companies (low or high). It does hold them responsible for the operating results. Stock prices take care of themselves.
His recommendations for change are even sillier then his criticisms. He suggests to replace the pursuit for shareholder value with...building shareholder wealth!!! If I were a Boston snob I could probably see the difference but I am not. It sounds all the same to me. Arguing about the usage of words and terms (among vs. between; many vs. a lot; shareholder value vs. shareholder wealth; etc.) is intellectual no more challenging then collecting stamps or baseball cards. If the Boston snobs think otherwise then I would let them have it their way.
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2: For anyone seeking to build a successful stock portfolio
In The End Of Shareholder Value: Corporations At The Crossroads, Allan Kennedy persuasively maintains that managing businesses solely to get the stock price higher is bad for workers, customers, suppliers, and ultimately bad business for the stock holders as well. While for the few who hold the stock, and the fewer still who manage the company and then cash out when the stock price is high, the style of managing for stock price benefits, will invariably result in an erosion of company value with employees and shareholder being adversely affected under a short-term management practice and perspective. The End Of Shareholder Value is "must" reading for anyone seeking to build a successful stock portfolio through buying shares in any corporation regardless of size, past performance, or managerial reputation.
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3: Interesting study of corporate evolution
I'm not an economist and I don't have an MBA, but for the most part, I found this book to be easily understood and informative. I especially enjoyed the study of the three phases of the evolution of large companies, from family-derived to the greed merchants of the 1990's. Because I "cheated" and read the last couple of chapters first, I was concerned that Mr. Kennedy appeared to have a somewhat anti-business view of how to correct things (power to the people and all that). But I have to admit that his remedies do make a great deal of sense, and that it will take some real revolutionary changes to get us out of this mess we're in.I must say that, for the most part, big corporations (and I've worked with quite a few, as a customer, employee and supplier) do take advantage of the "other" stakeholders (employees, suppliers and customers!) and that, often, senior management is much more concerned with feathering their own personal nest than in doing the job that they're paid a lot of money to do. That's pretty frightening, because it's in the hands of these managers that the future of corporate America rests. I just hope that somehow we can get them to listen. I'd sure like to buy about fifty copies of this book and send it to some senior managers I know (anonomously, of course!)
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4: thoughtful assessement of state of shareholder value
Kennedy bases his assumptions on Benjamin Graham's and David Dodd's classic, SECURITY ANALYSIS, and argues that as he was writing his book, the stock indexes were as crazed as the tulip craze of the 1630s when tulip bulb values were run to more than $20,000. (See Mackay's EXTRAORDINARY DELUSIONS for an excellent early recounting of the tulip and other crazes.) Kennedy's book looks not just at the Internet stock run-up but also the P/E values of other companies, such as GE, which he argues are also over-valued based on their earnings. His picture painted is a bleak one and his question of whether the leaders of the dot-com movement such as amazon.com will ever have enough margins to boast any profits are especially prescient given the dot-com downturn that followed the publication of his book. (See Geoffrey Moore's LIVING ON THE FAULT LINE for an opposing view of shareholder value.)
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5: A "must" for anyone building a successful stock portfolio.
In The End Of Shareholder Value, Allan Kennedy persuasively maintains that managing businesses solely to get the stock price higher is bad for workers, customers, suppliers, and ultimately bad business for the stock holders as well. While for the few who hold the stock, and the fewer still who manage the company and then cash out when the stock price is high, the style of managing for stock price benefits, will invariably result in an erosion of company value with employees and shareholder being adversely affected under a short-term management practice and perspective. The End Of Shareholder Value is "must" reading for anyone seeking to build a successful stock portfolio through buying shares in any corporation regardless of size, past performance, or managerial reputation.
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