The issues of CEOs in listed companies

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Generally, all of CEOs and directors of listed companies, especially in the United States and Europe, understand that creating value for shareholders is an important corporate objective. For example, Tomkins plc, the global engineering and manufacturing group, one of the fastest growth rates over the past 30 years. In its Annual Report (2006), it states its primary objective as: "the creation of shareholder value by achieving long-term sustainable growth in the economic value of Tomkins" 1. Another example, ASUSTek Computer Inc, one of the leading companies for producing computer hardware and laptops, has a similar goal. In its Annual Report (2009) it shows that: "ASUS will sure work hard to achieve the sales target for the benefit of shareholders"2.

The objectives of Tomkins and ASUS, summarized at the start, suggest that these companies' management boards have clear idea of its purpose and key objectives. Their mission is to deliver maximized value to companies' shareholders in the form of dividend and capital growth. An organization such as ASUS, with a wide range of products, acknowledges that meeting the requirements of its existing and potential customers is important. However, it also recognizes that the most important 'customers' are the shareholders - the owners of the business. Its objectives, strategies, and decisions are all directed towards creating value for them.

In traditional corporate finance, the objective in decision-making is to maximize the value of the firm. A narrower objective is to maximize stockholder wealth. When the stocks are traded and markets are viewed to be efficient, the objective is to increase the stock price. All other goals are try to make firm value maximized, or operate as constraints on firm value maximization.

However, in my opinion, the firm should not consider shareholder maximization as a primary objective as beside shareholder there are other groups that can effect company performance. Mcmenamin (1999, p.40) pointed out that, today, it is not possible, or even desirable, for a company to seek to achieve shareholder wealth maximization in terms of profitability to the total exclusion of all other considerations. Indeed, this author reports that, "In the management of a firm there are a diverse group of interests, often conflicting interests, which need to be recognized and included within the goals and objectives of the firm"3. And in fact, in recent years, many companies will try to find the balance among stakeholders' interest as well as shareholders. Stakeholders are groups such as employees, customers, suppliers, creditors, and owners who have a direct economic link to the firm. Employees are paid for their labor, customers purchase the firm's products or services, suppliers are paid for the materials and services they provide, creditors provide debt financing, and owners provide equity financing.

There are many researches and studies suggest that company should not consider shareholder maximization as the highest priority. Arias and Paterson (2009, p.97) shows that the stakeholder theory maintains that corporations must recognize their responsibilities to various stakeholder groups in society, beyond just their own stockholders; in this regard, these responsibilities include:

"1. Providing customers to produce safe, high-quality products at reasonable prices;

2. Treating suppliers with honesty and with integrity;

3. Ensuring that employees and managers are provided with profitable work opportunities and to be rewarded in an open and just way;

4. Being good corporate citizens with regards to local, national, and global communities; and,

5. Providing their shareholders and creditors with a fair return on their invested capital." 4

The stakeholder theory has been applied in many companies, almost companies have referred this theory in its Corporate Governance. For example, Thomson Reuters has maintained good relationship among stakeholders by dividing them into 4 groups. In its Corporate Governance, it says: "It is increasingly important to demonstrate to our key stakeholders that we conduct business in a responsible way. Corporate Responsibility (CR) at Thomson Reuters is about understanding and managing our relationships with stakeholders in four quadrants: the marketplace (our customers, suppliers and investors), our workplace (our employees), the community (the places and societies in which we operate), and the environment."5

From this theory, we can conclude that there are other groups beside shareholders that company has to take care. And if company successfully increase the value of these group, the company will sure maximize shareholder value.

First, in order to maximize the shareholder value, company must increase the customer satisfaction. It is easy to realize no company can create great wealth for its shareholders without a stable and growing revenue base, which can only come from having very satisfied and loyal customers. The more customers are satisfied, company will sell more products/services, and that will increase profit for company and also shareholders. Many people think that management of company has to consider maximization of customer satisfaction as the most important goal as it will provide the benefits to other stakeholders. This point of view had been expressed by Paul Allaire, CEO of Xerox: "I have to change the company substantially to be more market driven. If we do what's right for the customer, our market share and our return on assets will take care of themselves."6 . Companies today try their best to serve customers, for example, they customized products for clients, accept many kinds of payment, using and then paying, etc. Dell Corporation is famous for customized desktops and laptops, besides standard ones, customers can build their favorite products in their websites.

In addition, company propose treating suppliers fairly, which we take to mean that, as a customer, the business strives to pay "market" prices for its supplies, pay its bills on time, and generally treat its suppliers well. Suppliers and supply chain management are both crucial for company's production and operation. McTaggart, Chairman and CEO, and Kontes, President and COO of Marakon Associates (1993) identified that actions like "an attempt to pay prices that are below market levels or delaying payment as much as possible will typically lead to supply disruptions or quality problems, which will damage the value of the business over time"7. The authors also stated that company should focus on consolidating suppliers to increase volumes purchased, working with each supplier to improve quality, and coordinating delivery-production schedules to minimize cost and inventory, each of which is likely to help maximize value for shareholders. Some companies, especially five-star hotels and restaurants treat their suppliers very well as the supplied goods will reflect standard of them.

As for the employee-stockholder relationship, the message is similar. Maximizing value for shareholders demands enlightened human resource management, since the company's workforce is a potential source of significant competitive advantage, which can be directly translated into superior value creation. Companies that attempt to pay their employees below market wages, or treat their employees in a manner that does not fully utilize their skills and talent are unlikely to create the maximum value possible for shareholders. On the contrary, those companies with the best records of accomplishment of value creation, such as Google, Microsoft, and Thomson Reuters, are also among the very best at human resource management. In its Corporate Responsibility, Thomson Reuters consider people make difference: "Every individual at Thomson Reuters plays a key role in assuring that we do business according to the highest standards of ethical and responsible conduct. We respect and value diversity in all its forms"8. Not only do they realize the crucial role that their workforce plays in creating and sustaining competitive advantage, which translates into value creation, but they can more easily afford to invest in education and training and share some of the benefits of their success with their employees. Clearly then, there is no inherent conflict between shareholders and employees of companies that are performing reasonably well.

Besides customers, employees, suppliers, company should take care to the wider community or the environmental issue as it will bring a lot of benefit to the company. Traditionally, businesses focused on creation of wealth for their owners and often ignore the damage they caused on the environment and quality of life. However, today, the public, which included consumers of products and investors in businesses, increasingly began to prefer environment-conscious/green businesses while making purchases and investing money. Environmental issue has become a part of business strategy. It can effect directly to the company's operation, profit and even the stock price. BP Oil Disaster is an example of how environmental issue affect greatly to the company. Due to the negligence and lack of responsibility on the part of BP and its associated companies the explosion in the oil well caused explosion of Deepwater Horizon. The Spill caused the extensive damage to the environment and huge economic losses for the company. According to Wikipedia, the company's total value lost since April 20 was $105 billion. Investors saw their holdings in BP shrink to $27.02, a nearly 54% loss of value in 2010. A month later, the company's loss in market value totalled $60 billion, a 35% decline since the explosion. At that time, BP reported a second-quarter loss of $17 billion, its first loss in 18 years. It is estimated total losses could amount to $30 billion ('Deepwater Horizon Oil Spill' 2010)9.

In conclusion, maximizing shareholder wealth is a very important objective for a company. However, it does not mean that management should ignore social responsibility, such as protecting the consumer, paying fair wages to employees, maintaining fair hiring practices and safe working conditions, supporting education, and becoming involved in such environmental issues as clean air and water. It is appropriate for management to consider the interests of stakeholders other than shareholders. These stakeholders include creditors, employees, customers, suppliers, communities in which a company operates, and others. Only through attention to the legitimate concerns of the firm's various stakeholders can the firm attain its ultimate goal of maximizing shareholder wealth.

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