Why are corporations not interested in maximizing shareholder value again unlike in the past where the money generated from share sales to shareholders were used to grow the business. In the early days of cars, Henry ford used the money gotten from shareholders to build more factories, employ more staffs and increase their wages. In one word, he was using the returns from the sale of shares for the growth of the companies but shareholders didn't want him to increase the wages of workers, instead they wanted him to increase the price of the cars being produced especially the Ford Model T.
Since Henry Ford was the highest share holder, he was taken to court with the allegations that he wanted to use veto of being highest shareholder to write off the request of a number of people because they were minority shareholders. The court supported the minority shareholders and with this, Ford was unable to do the things he wanted to do for the company but then it upholded the rule that executive board members can do what is thought to be in the best interest of the company even if it isn't making the price of shares skyrocket.
In the past, CEOs were paid well but not up to what CEOs today are being paid which is enough for them to retire after a year, so CEOs were made to work so they can retain their jobs that were paying well, and to do so, they needed to work towards the growth of the company they were leading. In recent years, shareholders decided that for them to be able to earn more and make the CEO committed to the company more, their bonuses should be paid in stocks. As you would expect, it caused the pay of CEOs to rise do high beyond the normal amount.
Image Source
This has made CEOs to work towards increasing stock prices, and paying a high dividend on their stocks. This gives them more wealth, and these bonuses are giving yearly. With this, the average tenure of CEOs and CFOs are decreasing drastically. For CEOs now, announcements that will payoff over a space of ten years is somewhat useless unless it is going to drive the price of shares up. Even the 10 years plan isn't what investors are interested in, they are interested in their money, and want to see it grow as soon as yesterday, and moreover it isn't like the plan would become a reality with such long term overtime.
The job of CEOs based on strategies for now according to investors is to control bad publicity, increase income, and focus on the next quarter's financials. Shareholders are interested in not losing money to scandals since most scandals have come with money being lost in the billions. One thing that is common now is the fact that a CEO that delivers a profitable fourth quarter will be well popular than a CEO that is reinvesting the earnings into the trainings, safety, and financial auditing.
The metamorphosis of CEO objectives from long-term growth to short-term gains mirrors the changing dynamics between corporations and shareholders. The pursuit of swift financial returns has reshaped the CEO's role, emphasizing immediate profits over sustained, visionary investments. As the corporate landscape adapts to this paradigm shift, the balance between shareholder interests and sustainable business practices remains a challenge. In navigating these intricacies, CEOs find themselves at the crossroads of meeting quarterly expectations and fostering enduring corporate legacies.
Posted Using InLeo Alpha