Question from Fundamentals of Corporate Finance book page 29: It is sometimes suggested that instead of seeking to maximize shareholder value and, in the process, pursuing profit, the firm should seek to maximize the welfare of all its stakeholders, such as its employees, its customers, and the community in which it operates. How far would this objective conflict with one of maximizing shareholder value? Do you think such an objective is feasible or desirable?
I am almost finished with my MBA and I am still not sure how to answer this question. The concept of shareholders providing investment capital is tied directly to the creation of wealth for both parties. At first glance, the answer is simple – companies need to focus on creating wealth which is tied to maximizing shareholder value. My caveat to this is that it needs to be longterm shareholder value. The company is not responsible for fast wealth creation that ultimately destroys the company. The company is responsible for making smart investments that will ultimately payback the investor with interest.
My Financial Management class has taught me that there are lots of ways to try to forecast the future longterm payback and sometimes something that looks good on paper isn’t good for anyone. My Corporate Governance class taught me that taking care of other shareholders can sometimes lead to greater profit for investors – although this seemed to be an even trickier thing to forecast.
One of my professors argued that a company is a collection of people. As we would expect each individual to live by a certain moral guide we should also expect the collection of people to live by a moral guide. Case in point: I would expect my office mate to pick up their trash, why would I not expect the company to clean up a site it damaged?
This is where I get stuck. Every scenario is complicated and sometimes it feels like there are only bad options. I want to think that honesty and straight forwardness could help any leader find another option. I am not naive enough to think that the moral option or even the least worst option is not going to cost lots of money and could take the company down. In that case, is it moral to lose the investors’ money?
It is so easy to go in circles on this one. I believe that each human has to act in the interest of the greater good. Unfortunately, there is not a common understanding of the greater good.
I just talked myself into a circle. I shall think about this more because I do feel that companies should be focused on more than shareholders but I have grown up expecting so little of companies that I am having a hard time imagining a real world where companies did focus on more than the bottom line.
My friend: the overspender
I have a friend that consistently has issues with money. She complains that she can never pay her bills on time. However, when we go out, I have not noticed that she has problems buying dinner or paying for drinks. I admit that her speed at pulling out a credit card makes me slightly suspicious of her money management. So, this time when she complained, I asked her if I could help.
“Where do you spend most of your money?”
She answered “I don’t know” which was discouraging but not shocking. We have all heard that paying electronically or with credit cards makes it harder for us to feel our spending. Apparently she uses one credit card for “almost all” transactions. She had not looked online to see if it breaks down her spending so we did that and she was SHOCKED to discover how much she spends monthly in restaurants.
I admit to feeling relief that my friend only had one credit card going. I have known people with multiple maxed out credit cards, using one card to pay the minimum on another card. So, this is definitely not a worst case.
“Where are you willing to spend less money?”
This is key. It’s great to know how much you spend in places but if you don’t care or aren’t willing to change, the knowledge doesn’t help you.
She thought about it and decided she was okay spending less at restaurants if she did not have to cut back on bar spending. Then came the recommendation she disliked – I told her that if she really wanted to do reduce, she needed to actively track with pen and paper or electronic entry. This is all about making the spending real and being accountable to yourself. It isn’t worth fibbing to yourself because the credit card is going to tell you the reality. You just need to be active in the tracking and reduction.
She says she can reduce without having to track. I told her she’s trying to make a habit change without doing the work. We will see who wins in this argument.
Step 4 with Real Appeal: Track your calories. “Studies show that tracking your food intake can actually double your “weight loss” efforts (this is a stat worth repeating!).”
They really do write in the book “(this is a stat worth repeating!)”
I think anyone that has a weight problem has experienced ups and downs. I myself have tried multiple diets some not so good for me. Normally when I diet, I start using MyFitnessPal which is very helpful for saving meals and creating recipes. It is also nice because it is free! It was also easy to tell when I was on a crash diet because it would let me know I was not eating enough. The app is not happy with full day fasts or juice cleanses.
So anyways, I am back on MyFitnessPal and trying to track my calories. The deceptively “simple tricks” described by Real Appeal are:
- Log every bite, lick or sip – In other words, don’t lie to yourself. Don’t eat it if you can’t make yourself log it.
- Specify type and quality – Once again, don’t lie to yourself. Get to know how 1/2 cup of rice looks versus 1 cup – it’s a difference of 100+ calories (5% if you are 2,000 calories/day).
- Log it ASAP – The longer you wait, the more you will forget and the higher chance that you will pass your calories before you realize it.
- I don’t like their phrase on this one so I will rephrase it to: “Do your best” – do not allow inaccuracy concerns to keep you from tracking
Real Appeal Question: What are the goals you would like to reach with the Real Appeal program?
- It is November 2018. By my anniversary in February 2019, I want to have lost 10 lbs and be solidly at or below 175. This is 2 lbs/month, doable even during the holiday season.
- Starting now, I will increase my exercise level so that I am working out at least 5 times a week with a mix of strength and cardio.
- My goal weight is at or below 150. I know this will be a struggle as it has taken me 10 years to get to the point I am now and I need to go back and change lots of habits.
- I want to complete another marathon. I want to train correctly and I want to finish strong. The first one I did was good but I fell apart in the last two miles. I can do better.
- I will be an example of a healthy, athletic, strong adult for my children and I will support my husband in everything he needs to be healthy and meet his goals.
I worked the polls yesterday for my voting area: 6AM – 8:30PM. I had already voted in Early Voting (such a fantastic program) so I was really there to help other people vote. It was a fantastic experience.
When I arrived, I thought I was volunteering for the shift but found out that in Texas, they pay you for your work in the polls. I suppose it parallels Jury Duty – another not always fun but super important civic duty.
If you have ever even considered the idea – please give it a try.
This is the link for applying in Harris County: Apply Here.