Financial Stakeholders & Value

Are our financial stakeholders a drag on value? Are they an anchor causing regression to the mean? This hypothesis is worth discussing.

I received some insight recently how a private equity firm effectively cornered the market in a bold strategic play with operational excellence as part of their modus operandi.

This news got me wondering - could publicly traded companies behave the same way? Probably not, I concluded. Many publicly traded companies are too busy trying to meet their quarterly earnings. A slave to the grind.

Sure, they might be on a journey towards operational excellence but it is slow and plodding and often knocked off-balance by shorter-term needs. This fits with experience.

I received different insight from a CFO friend who linked the question of investment community short-termism to incentives. What was the analysts, the investment banks and the company's executives incentive? Not for the long-term.

Huge if true, but ironic, no? This is the operational equivalent of what economists call “rent seeking”. Is this how we want our owners to act?

Do they understand what behavior they are encouraging? Do they know what value they are giving up for their shareholders? I wonder.