Pursuit Of Shareholder Value Distorted Company Strategy

1796 words - 7 pages

It has been strongly emphasized that the fundamental goal of all business is to maximize shareholder value, as the focus of business argument now changed from giant firm in product market to giant firm facing the capital market. Especially, since the 1990's, there was a significant increasing demand from top companies for shareholder value, and shareholder value was subsequently used in Britain and USA as a management justification for the corporate restructuring and downsizing which promised to deliver increased rates of return. There are some reasons that the demands and pressures of the US and UK capital markets were more urgent to maximize shareholder value. Firstly, the US and UK markets were much larger in terms of market capitalization relative to GDP, meaning that it is no longer that productivity is a key to success. Second, in both the UK and USA, there was a clear shift in ownership from direct ownership (households) to institutions, such as pensions and insurance funds. This is because such institutions were allowed to invest on stock market since 1980, and more people invest into pension funds to get higher and better return rather than putting money into the bank with the relatively low interests. These institutions own 60% of shares in UK and they act as an agent for people and achieved a lot of power to influence company.In this essay, I am going to highlight the importance of shareholder value and reveal the needs for a more reliable measurement system rather than traditional measurement such as discounted cash flow. After that, moving on to the facts of strategies that can be applied into the companies in order to maximize shareholder value and analyze problems occurring on the process of practicing those strategies with some examples such as Glaxo-Wellcome, GEC and BT.Shareholder value is the financial value created for shareholders by the companies in which they invest. With the increasing global competition, the success of a company is depends largely upon continued shareholder patronage and its success in the stock markets. Every company has to give absolute importance to shareholder value creation in order to gain a competitive edge in business. It is very logical to say that the companies that are unable to create shareholder value will find that capital flows going away from them and they will not have enough capital to run their business. Moreover, The role of fund manager of driving up the market value of shares year on year also shows the increasing importance of pursuing shareholder value. As stated in the introduction, an implication of the increasing importance of institutional ownership is that management of share portfolios is delegated to professional fund managers who are often judged on the basis of short-term performance. This not only adds pressure to perform on those companies whose shares are mainly held by institutions, it also influences the composition of share portfolio. For example, Golding (2001)...

Find Another Essay On Pursuit of shareholder value distorted company strategy

Essay topic: Shareholder value provides a comprehensive framework for evaluating strategic and tactical marketing decisions

1741 words - 7 pages of strategy and tactical. The important 2 types of market-based assets are relational market-based assets and intellectual market-based assets which involved in brand equity, partnerships, relationship between company and stakeholders, and customer loyalty. Brand equity has a particularly important relationship with shareholder value. Once the brand equity has been recognizing, the chain-reacting is that will bring the customer loyalty. Main

Company Shareholders: Profit Making and Market Share

1117 words - 4 pages transaction. Companies can determine shareholder wealth by looking at overall company value in term of the current value per share and number of stocks issued. Sometimes board members make strategic decision that will temporarily reduce shareholder wealth, such as investing in new facilities or technologies. These investments will add value later, and are acceptable to shareholders because they demonstrate a desire to grow the company. Bad business

The Role of the Financial Manager

679 words - 3 pages The Role of the Financial ManagerThe primary goal of every corporation is to maximize shareholder wealth, primarily through cash dividends and share value appreciation. To this end, the role of the financial manager is to act in accord with this premise. Under his/her auspices, the financial manager must determine which factors affect the company's stock price, and which choices will add value to the company, all the while ensuring that the

CSR report

1673 words - 7 pages contribute to society, or to use more expensive raw materials and production techniques. In short, despite the "CSR" sounds very nice, but it also represents the company must give up short-term interests, to accept the reality of rising costs and expenses. In this case, the shareholder of company will reject the CSR project, because the aims of shareholder are maximize the profit in short time. Therefore, Convince shareholder to invest CSR

Profit and Shareholder Wealth Comparison Paper

922 words - 4 pages will also help understand which company has provided greater shareholder wealth creation. The calculation of net profit will help identify which company has done a better job of maximizing profits. From those analyses, the strategy of each company regarding the risk to the shareholder’s investments will be clarified.Today, GE is “11 technology, services and financial businesses with more than 300,000 employees in 160 countries around the

Budwiser Corporate Analysis

3901 words - 16 pages Executive Summary Anheuser-Busch Companies, Inc. continually seeks opportunities to maximize shareholder value and increase efficiency. Through their extremely effective marketing strategies A-B has gained control of over 47% of the global market share. In the process of doing this, Anheuser-Busch has become one of the most recognizable trademarks. This is not without its faults though. Anheuser-Busch's aggressive advertising campaign has

Drafting a Problem Statement

651 words - 3 pages Financial management plays a pivotal role in increasing shareholder value and customer satisfaction. The qualitative study involves survey as the research design and financial managers as the participants. The research aims at collecting data to establish the effects of financial management on customer satisfaction and shareholder value. Customer satisfaction and shareholder value are some of the main indicators used to measure the prosperity of

Profit and Shareholder Wealth Comparison

878 words - 4 pages = 3.51For TYCO:(2,019 X $27.15) $34,186 = 1.60Based on these market-to-book ratios, TYCO's strategy has provided greater shareholder wealth creation. This is evident by the smaller market-to-book ratio. Both are greater than one, so each company's stock is overvalued. However, GE's is more overvalued, providing for less potential shareholder wealth creation. TYCO has utilized more of the investment to develop more value into the company.Average

Strategic Decision for Smart-Mart

1463 words - 6 pages of providing complete control of the production and supply, would actually cause the company to be completely emerged in the process. There are two major downsides to it. First, production of bio-fuels is outside the core competence of the store, and hence there could actually be destruction of shareholder value due to high startup cost and uncertainty of future profitability, SmartMart has no way to know what costs might show up in form of

Traditional Management Accounting and Innovation Management Accounting

1756 words - 7 pages enterprise environment, as well as non-monetary measures of factors, neglecting the pursuit of a higher degree of long-term integrated value to maximize shareholder value. For example, in cost of quality issues, its best quality and cost concept Naishi refers to internal and external loss prevention along with inspection costs and expenses, and four of the lowest quality level, and use it as the quality of the overall goal of cost control. However

Why diversify

9140 words - 37 pages kinds of businesses, could minimize value from those businesses. Portfolio planning helped corporate executives sort out the contribution of each of their businesses to the corporate portfolio, but it did not answer the other critical question confronting a diversified company: what contribution should the corporation make to each of its businesses? Diversification and Corporate Strategy in the 1980s During the 1980s, there was widespread

Similar Essays

Strategic Action Update Of Bharat Forge:Environments Scanning And Industry Analysis (Pest ,Swot Analysis, Value Chain Analyis, Growth Strategy Pursued.

3882 words - 16 pages Table of Contents:SL No Topics Page N01 Executive Summary 32 Introduction 43 Industry Structure 54 Environments Scanning and industry Analysis, Key success factors in the industry 65 Competition Update 76 Bharat Forge: A brief history and leap of faith 97 Mission Update: Vision 1997- 108 Growth Strategy 119 Value Chain 1210 Competitive Advantage 1311 SWOT Analysis 1412 Key Success Factors 1513 Results 1614 Future Ahead 1615 Conclusion 1716

An Examination Of The Global Strategy And Cross Border Operations Of Ford Motor Company With Swot Analysis

2553 words - 10 pages pressed to close any factories in America. In order to eliminate this weakness, Ford's senior management will need to ensure that the UAW understands the precarious position the company is in, and furthermore Ford will need to include management in future layoffs and staff reductions to appease worker rights. This is in line with the above recommended strategy of reducing management layers. Ford's contractual agreement with the UAW ends in

Study To Assess The Effect Of Developing A Job According To The Value Chain Recognized In The Company And It's Effect Subsequently On All Hr Processes.

9071 words - 36 pages strategy for organizations so as to build and maintain competitive advantages in the long run.The importance of the Value Chain as a tool is that it shows the contributions from different functions of an organization in the value-adding process. At its simplest, it integrates both the process steps for a customer delivery and the various functions in a company that enables the delivery at different stages (Walters, P.132).As a very powerful cost

A Company That Has Practiced Survival Of The Fittest. "Choose A Company That Faced Significant Obstacles And Had The Foresight To Dramatically Adapt Their Strategy/Strategies To Maintain Or Regain...

1249 words - 5 pages common in a population over successive generations. Thus some individuals will survive and reproduce more successfully than others in their current environment. This theory of Darwin has been applied to the business world along with the famous economist, Alfred Marshall idea, "life cycle". Marshall's idea is referring to the life span of a company, where it rises and falls on its journey down the road. Darwin and Marshall together, point