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The Dumbest Idea In The World Summary

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The Dumbest Idea in The World: Maximizing Shareholder Value Agree with Jack Welch or not, per the article the dumbest idea in the world is the maximization of shareholder value. Mr. Welch stated in an article in the Financial Times that “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy.” (Denning) The concept of shareholder value as the primary focus of the manager was created by two professors in an article in the Financial Times in 1976. The assertion that the shareholders are the principals of the firm and the managers are the agents hired by the principals, has led to managers manipulating the exchange market, accounting scandals, and “parasitic market players” (Denning) …show more content…

The author asserts that by taking care of the customer the shareholder “will be drawn along for a very nice ride.” (denning) The real market, providing authenticity and a positive for society, needs to revert to the manager’s primary focus. Roger Martin, Dean of the Rothman School of management at the University of Toronto, in his book Fixing the Game cites legal changes needed to take the focus back from the expectations market to the customer. First he cites that the 1995 Private Securities Litigation Reform Act should be repealed. This act maintains the safe harbor provision, with repealed would then hold companies liable for attempting to management expectations. Martin also proposes the elimination of regulation FASB 142. This elimination would remove the need to manage expectations to avoid write-downs of company assets. The most controversial of his suggestions would be the elimination of stock-based compensation as incentive and the prevention of selling any bought stock during their tenure and for a time span after leaving their position. Martin also includes restoring “authenticity to the lives of our executives”, addressing “board governance”, and to “regulate expectations market players, most notably hedge funds.” (Denning) Martin asserts that making these changes would force corporations to work toward …show more content…

(Yang) The company is more focused on how they can increase shareholder value with emerging technology that produces large revenues with a cheap outsourced and offshore labor force, than to provide society with products and service by onshore labor. The initial balance of of company and county interests, as led by Thomas J. Watson Jr, has been replaced with the “road map” of Virginia Romney in which the “primary goal is to dramatically raise the company’s earnings-per-share figure.”

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