Companies to be run to benefit all, not just shareholders

[winner69]

The HLG thread been discussing the imperative of ‘maximising shareholder value’

Seems the world is moving on and that the company has a duty as an entity is to its full range of stakeholders

To keep the discussion off the HLG thread I’ve started this thread.

Much respected Rob Campbell talked about this the other day.

https://www.stuff.co.nz/business/123361914/skycity-chair-calls-for-end-to-excessive-ceo-salaries

We need a revolution in the Board room.

[winner69]

No doubt some will say Rob’s lost the plot - or as Rob himself says ''my views maybe a bit idealistic to some''.

Good on you Rob

[Balance]

Executives' salaries and benefits have become totally out of step with their performance, especially when they do not perform!

definitely time for a rethink.

[alokdhir]

I fully endorse the views of Rob ...I suggested some time back on Fisher managed listed PIEs forum that investment companies should be looking to protect untrained and newbies investors by trying to close huge aberrations in market prices of their funds .People are buying many of them hugely over their last reported NAV ...as much as 12-15 % . Just by providing a market maker on NZX can solve this distortion of demand and supply mismatch at the moment thus encouraging new investors in fold in a fair manner .
But my suggestion was not well accepted by other share holders as they think its against old share holders interest as it will rob them of the opportunity of doing arbitrages at newbies expense .
For me a fair and well meaning company should be responsible towards all not just its shareholders .

[thebusinessman]

Interesting too, in a recent class on Corporate Finance the mantra was repeated and repeated "the purpose of the company.... IS TO MAXIMISE SHAREHOLDER VALUE" - I found it a little out of step with where the world seems to be heading, though, like Rob, perhaps I am too much of an idealist.

[Bjauck]

A company's activities affect and have implications for more than its shareholders. Companies Act needs amending? Depending on the type and scope of its activities, perhaps other stakeholders should be given seats on the Board or votes alongside shareholders...employees, lenders, local communities, environmental agencies, industry regulators etc.

[Swala]

I think that companies such as Mainfreight are starting to show the way in this respect. Their stellar performance also shows that inclusiveness does not have to be at the expense of shareholders.

[winner69]

Interesting too, in a recent class on Corporate Finance the mantra was repeated and repeated "the purpose of the company.... IS TO MAXIMISE SHAREHOLDER VALUE" - I found it a little out of step with where the world seems to be heading, though, like Rob, perhaps I am too much of an idealist.

Therein lies a problem .....’they’ who totally believe that make sure that maximising shareholder value mantra is part of the curriculum

Got to get it entrenched in young minds before they see the world for what it is.

[Gregnz]

AirNZ is the epitome of a company which is focused solely on rewarding those at the top and shareholders (including government). I think prior to recent redundancies of around 4500 staff, based on the pay scales of those at the top and those at the bottom, removing 8000 of the lowest paid employees only had around a 20% impact on the overall wage bill for the company, at a time when there were approx 12,000 staff. Most frontline customer facing staff on average full-time salaries of $40-$50k, while several thousand management and other staff on $200k plus, and over 500 on $400k plus, and approx 20 on $600k plus. They include this breakdown in their annual report. For a company which is built on the reputation of its front line staff and customer service, you'd think that those actually serving the customers in airports and on aircraft would reap a little more of the rewards when the business is performing well. Instead during tough times they are the first to go, and during good times they are the last to see any financial benefit.

[Beagle]

I believe the ESG pendulum has swung to far to the left. Some companies, and a recent excellent case study is Synlait, have taken it upon themselves without shareholder approval to elevate people and the planet to the same level as shareholders and in doing so expended vast management resources of over 30 staff for more than a year achieving this accreditation. They fiddled endlessly while Rome burned and their debt level's blew out badly and they exposed shareholders to untoward legal and operational risk with Pokeno.

The risk is if companies start off on missions that are tangential or worse still incongruent to the primary purpose shareholders created them for with their risk capital, shareholders interests will become subservient to the whims and wishes of boards and senior management with their own socialist or ideological agenda's.

I say, sure, be kind to the environment, comply with all environmental and employment laws and ensure all stakeholders receive fair and equitable treatment but lets not ever forget that shareholders stumped up with their own risk capital to further the interests of the company to maximize profit so those shareholders who own the company can make their own decisions about what altruistic endeavors they wish to pursue and not have directors and management making ad hoc decisions outside of their mandate on shareholders behalf.

Shareholders deserve the respect as the one's who invested their own risk capital to be the ones to make their own decisions about who to bless with their dividends. When directors and management make major decisions on shareholders behalf to expend vast resources on some pet socialist or environmental project they are exceeding their authority and I for one will not support any company that treats shareholders so disrespectfully.

[mondograss]

In the age of social media and consumer led boycotts, I'd argue that doing the right thing and maintaining a good public image is maximising shareholder value, not diminishing it. But that depends on how long a view you want to take. Certainly there's plenty of companies out there that seem happy to do what makes them the most money today and to hell with the future. In reference to Beagles post above, I'd argue that Synlait are an example of the worst of both worlds. They made an incredibly rash decision to go into Pokeno without properly sorting the covenants issue.

[jimdog31]

I believe the ESG pendulum has swung to far to the left. Some companies, and a recent excellent case study is Synlait, have taken it upon themselves without shareholder approval to elevate people and the planet to the same level as shareholders and in doing so expended vast management resources of over 30 staff for more than a year achieving this accreditation. They fiddled endlessly while Rome burned and their debt level's blew out badly and they exposed shareholders to untoward legal and operational risk with Pokeno.

The risk is if companies start off on missions that are tangential or worse still incongruent to the primary purpose shareholders created them for with their risk capital, shareholders interests will become subservient to the whims and wishes of boards and senior management with their own socialist or ideological agenda's.

I say, sure, be kind to the environment, comply with all environmental and employment laws and ensure all stakeholders receive fair and equitable treatment but lets not ever forget that shareholders stumped up with their own risk capital to further the interests of the company to maximize profit so those shareholders who own the company can make their own decisions about what altruistic endeavors they wish to pursue and not have directors and management making ad hoc decisions outside of their mandate on shareholders behalf.

Shareholders deserve the respect as the one's who invested their own risk capital to be the ones to make their own decisions about who to bless with their dividends. When directors and management make major decisions on shareholders behalf to expend vast resources on some pet socialist or environmental project they are exceeding their authority and I for one will not support any company that treats shareholders so disrespectfully.

Agreed. Didn’t theo have a similar approach at fonterra?

[Bjauck]

....
Shareholders deserve the respect as the one's who invested their own risk capital to be the ones to make their own decisions about who to bless with their dividends. When directors and management make major decisions on shareholders behalf to expend vast resources on some pet socialist or environmental project they are exceeding their authority and I for one will not support any company that treats shareholders so disrespectfully.
It is the shareholders risk capital. However at the same time it is the government and the legal system that gives them the framework, including limited liability, with which their investment can be put to public commercial use to earn them profits.

Shareholder capital is deriving benefit from organised society; shareholders should also share the cost in keeping society organised and harmonious. They should also share the cost that their company's activity has on society and the environment.

[Beagle]

It is the shareholders risk capital. However at the same time it is the government and the legal system that gives them the framework, including limited liability, with which their investment can be put to public commercial use to earn them profits.

Shareholder capital is deriving benefit from organised society; shareholders should also share the cost in keeping society organised and harmonious. They should also share the cost that their company's activity has on society and the environment.

A company pays 28% tax, one of the higher corporate tax level's in the OECD. Companies already pay more than their fair share of contributing to a fair society for all. Corporate tax rate in America for example is just 21%. Most companies see the resource management act is extremely odious and exhaustive. Reform is desperately needed in my opinion.

[artemis]

Profitable companies generate revenue for the taxpayer and for other businesses through employees and their own purchasing. Always possible to argue they should pay more, which they will of course if increasingly profitable. IMO if companies decide to hook into the social and environmental issues du jour they should be completely transparent as to the costs of the owners. Then owners can decide to sell up if they don't agree.

There seem to be plenty of advocates for companies to embrace climate change, diversity, affirmative action, protections for the new or unwary. Potential and existing investors can hook into those and make their decisions. Or choose to divert divvies or capital gains into issues they believe in. Some do of course.

Did I mention personal responsibility? Not in so many words ...

[peat]

start a charity.. thats what they are for.
I'm not even a fan of company sponsorship tbh but it is more of an appropriate way to 'do good'. Comes out of the marketing budget.

[Beagle]

Profitable companies generate revenue for the taxpayer and for other businesses through employees and their own purchasing. Always possible to argue they should pay more, which they will of course if increasingly profitable....
Did I mention personal responsibility? Not in so many words ...

Seems many have completely overlooked those two very pertinent points !!
We are not all just mindless shareholder sheep expecting companies to make altruistic decisions for us...something that seems to have been very conveniently overlooked by the shareholder lefties amongst us....possibly because they do little if anything in that regard personally ?

[Mr Slothbear]

I would argue putting the customer first is in the long run puttingbthe shareholder first. One only need look at Jack Ma from Alibaba and Bezos both who use this as their mantra and look at their results.

[Bjauck]

A company pays 28% tax, one of the higher corporate tax level's in the OECD. Companies already pay more than their fair share of contributing to a fair society for all. Corporate tax rate in America for example is just 21%. Most companies see the resource management act is extremely odious and exhaustive. Reform is desperately needed in my opinion. Shareholders receiving dividends can end up paying more than the 28% already paid by companies on their trading profit. The USA has a general capital gains tax too.

It is only right that companies which society allows to operate, should pay for their ability to trade with the rest of society, and to compensate for any costs which the rest of society would otherwise have to bear.

I am not sure who is suggesting that companies act altruistically. However as companies only exist, and are allowed to trade with the public, as a result of society and society's laws, then they are indebted to that society. It makes good business sense too to help and ensure the continued healthy functioning of the society with which they interact.

[Beagle]

I don't see your point. Companies pay 28% tax, they employ staff who pay PAYE to the Govt, they collect GST for the Govt and as you mention some shareholders end up paying another 5% (soon to be 11%) extra tax on dividends received. Companies must operate at extremely high compliance cost within a vast number of regulatory and local authority regulations all of which they pay for through levies rates, waste collection fees RMA fees etc etc etc.

As companies grow they pay more of all of the above taxes, levies and compliance costs.

[KJMLimited]

There is emerging evidence that companies which 'do the right thing' (my term for altruistic behaviour) perform better financially. Something to do with employees being well-treated, alignment to employee personal values, higher productivity, more efficient. There are SRI funds that outperform peers because these are the businesses they invest in. Not so dumb maybe?

[Norwest]

start a charity.. thats what they are for.
I'm not even a fan of company sponsorship tbh but it is more of an appropriate way to 'do good'. Comes out of the marketing budget.

Most people do sponsorship just to help out and because you can... but here's a real world example from last week, sponsoring a small local sports teams jerseys for $600 and getting the company logo put on them. After the first game, two jobs worth $12,000+, both the people said they had seen the logo on the jersey. I'm not saying this happens all the time but I tend to get most of my money I spend on sponsorship back and then some.