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VBM
Higher Pressure of capital markets on companies
Greater institutional investments
- growth of capitalised pension funds due to ageing society
=> Portfolio managers withdraw money from companies without competitive returns
Menace of hostile takeovers
- EU firms learned to communicate and satisfy demand of investors
- Increasing acceptance for firms to consider other stakeholders
VBM
Shareholder Value vs. Stakeholder views
Maximise value to shareholder vs. maximise value to all stakeholders
VBM
Shareholder View
Maximize the market value of a firm
(single objective)
Shareholder is residual claimant on
the company
Supported by a powerful theoretical
result: Social welfare is maximized, when
all firms in a society maximize their
own firm value
But: strong assumptions necessary
Maximize the market value of a firm
(single objective)
Shareholder is residual claimant on
the company
¨ Supported by a powerful theoretical
result:
Social welfare is maximized, when
all firms in a society maximize their
own firm value
¨ But: strong assumptions necessary
VBM
Stakeholder View
VBM
Questions for value maximisation
(1) Should firms have a single-valued objective?
o Value maximization: single-valued objective
o Stakeholder value maximization: multiple objectives
(2) If so, should that objective be value maximization or something else?
Possible objectives:
o Maximizing (shareholder) value,
o Maintaining employment,
o Improving the environment, etc.
VBM
Issue 2: Value Maximization makes society better off
VBM
VW Challenge value maximisation
Loss in the market capitalization of about
€ 15.8bn1) in the short term after the
publication
Barrett et al. (2015) estimate the
social costs due to health impacts by US$ 450m.
=> Implications for shareholder value approach
A narrow focus on exclusively financial KPIs and
short term value creation can set incentives to
ignore other important fields such as quality
and sustainability in company’s success.
=> The goal of value maximization must always be from a long term perspective
VBM
Adidas during corona
Situation:
German retail company Adidas stops paying rent for
its stores, which are closed due to the Covid-19 crisis
n Some weeks earlier, Adidas published its financial results of 2019: record year with
profits of € 1.9bn (+12%), major increase in dividends and share-buyback
Assessment and public reaction:
n Myopic decision benefitting the shareholders at the expense of landlords
n Significant reputational damage and extensive criticism by society, politicians and press,
even calls to boycott Adidas
No long-term value-maximizing strategy, arguably not even for shareholders
Result and takeaway
Adidas apologizes and pays rent again1)
Shareholder value is not yet dead, but stakeholders and society can put immense
pressure on a company
VBM
Stakeholder theory: Decision Making (Issues)
=> Managerial decisions difficult to evaluate as in shareholder view
VBM
Shareholder value creation <-> Reputation
Top value creators = most admired companies
Innovation
VBM
Value creation <-> Employee focus
Companies that treat employees good
=> more and better patents
=> higher stock and higher future return
VBM
Allianz Targets => Value Creation
5 levers and 4 targets
5 levers:
Targets:
- Growth
- RoE
- Net Promoter Score (Customers centricity)
- Inclusive Meritocracy Index (IMIX) = culture where people & performance matter
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