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February 23, 2010



A friend of mine recently referred to the fact that the CEO of Pepsico had conceded "shareholder value" was dead as a focus and there needed to be more of a shareholder approach. I joked that I was now going to sell my shares in Pepsico before they tanked...

It is an interesting point you make about liquidizing the firm as a way of maximising shareholder value. This was something that the 'corporate raiders' did, and it was interesting - and is interesting - how this activity is viewed as being rather ungentlemanly. The first recognisable wave of corporate raiders rather startled those family firms which were incorporated as PLCs, as Adam Curtis' documentary on the subject showed.

It strikes me that time is a crucial factor in maximisation. Watching news reports of the Toyota scandal last night, I was struck by how much the reason d'etre of the corporation was divorced from its avowed morality. Just as pharmaceutical companies stop safety-testing once a product has launched, the approach of the automotive industry has been similarly lax.

But in the long term, such damaging revalations as dodgy medicine and cars that don't stop can wipe out the good standing of a company in the eyes of consumers. What appears to be efficient in the short term is deadly, not only for consumers, in the long term.

Which gives us the second factor, competition. The perception is, if we go further than the competition - on safety, etc. - then the company will be less competitive and less likely to survive.

Dan Olner

You didn't cover the 'constrained' part of maximising. Assuming, for a moment, that we believe utility is a useful idea (and I kinda do, despite it having very little correlate in our mental worlds), you have a utility function that you maximise subject to a budget constraint. Economists like that for the same reason they like most things: they've got a math tool for doing it, namely lagrangian multipliers.

It's not such a bad idea: a set budget, a choice between x things I want, how do I get the most goodyniceness from my spending? As opposed to what I think you were saying, which was, maximise until my diminishing marginal utility is all outa puff and I need a little lie-down.

Good luck with the 'after markets' event; I thought about trying to sign up, but I think it's a little too sociological for me. If you're interested, here's some utterly speculative, non-academic waffle of mine on non-market regulation of food production in 3 cases. Oh, and more waffle on where the incentives should be in drug production.

Oops, didn't come here intending to be such a blogwhore. I feel bad. Not bad enough not to do it, it would seem.

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