Back in March the FT reported that Jack Welch, the former chief of General Electric and champion of shareholder value since the 1980s, had declared the idea that company managers should concentrate on it to be ‘dumb’. His apparent conversion prompts one to ask how different interpretations of shareholder value might influence business behavior, and what might be the economic, social and political implications of that.
Now, ‘value’ can mean several different things. It may refer to an absolute quantity, or a difference between two quantities, or a ratio of two quantities. Examples might be, respectively, a utility, a profit, and a rate of return. An enterprise may therefore aim to pursue a number of non-financial utilities, to achieve revenue or gross margin or profit targets, to produce a given rate of return on investment (“ROI”), and perhaps also to control risk. It may seek a blend of these, perhaps through a process to reach agreement between many stakeholders. Notions of value are held by many people and we cannot assume that they all think about it in the same way, or even that they agree about the nature of the thing being valued. And one could think of kinds of value that cannot be maximized or set off against others because they don’t vary along any kind of scale. Establishing exactly who your constituencies are and what they think and want may turn out to be rather complicated.
Peter Johnson on Open Democracy:
Peter Johnson, trained as an accountant, is head of finance at technology company Artihmatica . He has spent his career in various finance roles in the City of London.