Strathclyde Evening talk: Maximizing Shareholders value
The new 2016 was quite fruitful for events, as in the last week of Jan the IMA Dubai-UAE help two events. The first event was with RTA on Innovation, and the second event was in collaboration with Strathclyde Business School UAE on Shareholders’ Value maximization.
This passage will cover the second event.
This was the first time when IMA Dubai-UAE and Strachlyde business school ran a joint event, which has attracted more than 30 IMA members. The professor Christine Copper from Strachlyde Glasgow, UK had presented her talk about whether the social aspect should be considered when making the business decision.
She started her talk with showing an episode from the old 1940-es movie “It’s a wonderful life” about a small bank in the village, owned by a young man, who inherited it from his father, who was serving all villagers providing them with loans at reasonable rates aiming to serve the society rather than generate the highest profits. This personage bringing more of a socialism idea to the table, when the new capitalist intruder has come to that village and started buying all properties, businesses and wanted to buy out that bank as well, so then he could monopolistically control all villagers and squeeze the highest possible rent, bank fees and interest. That was the true dilemma – whether to resist and save villagers from these problems, or to give up and sell the bank to the intruder.
So, the question is – whether every money generating activity has a positive outcome? Christine brought an example of a few corporations that were affected by the development of technologies and then had to lay people off. Or as an example a prosperous Apple company, after the death of Steve Jobs had more than $121 million dollars to invest, but the decision was made to pay off all the dividends to the shareholders. Shareholders maximized their value out of their shares by getting these huge dividends, but as a result the next generation of iPhone 6 has very limited improvement, and as a result the sales of the iphone had dropped dramatically, they were the lowest ever since the iPhone was introduced.
Another example of the value maximization was given on the social impact bonds that are issued by many UK charity organizations. They have certain metrics to achieve be able to receive their grants after the completing their projects. One of the project was providing housing to the homeless people in the UK.
The requirements to get a grant is that the homeless person has to spend a certain number of consequently lived days in the provided accommodation. However either homeless person starts demanding the super HDTV otherwise threatening to leave the accommodation. Or sometimes the charities force a sick person to stay in the apartment instead of staying in the hospital in order to get that required number of days stays.
There is always a question of money and morality, the value can be maximized by any finance decision, but there is always short-term and long-term outcomes, so finance professionals have to consider all of the aspects when providing the information and making finance decisions.
The attendees found the topic very interesting and in the Q&A session the discussion continued whether globalization could cause any difference for the value maximization…
Overall the presentation gave lots of food for thought, looking at the finance from the social angle. We are the ones involved in business decisions, which will impact the future of the company itself and its stakeholders. We have to consider both long term and short term outcomes in order to succeed in shareholders’ value maximization.