At the end of the day, the only meaningful measure of a company’s success is whether or not it
has made money for its shareholders.
To what extent do you agree or disagree with the opinion expressed above? Support your position
with reasons and/or examples from your own experiences, observations, or reading.
The issue of what is most effective for measuring a company’s success is a controversial topic. From one perspective, since shareholders are the owners of the company, its primary obligation should be to serve the shareholders. From another perspective, if a company does not take care to protect and improve upon its brand value and market share, the company may lose out to the competition in the long run. In the final analysis, the statement that the only thing that matters is shareholder value is too narrow-minded and insufficient for the success of a company.
Granted, most people concur that a company, especially a large company, needs to please its shareholders in order to operate smoothly. If a company develops a bad reputation for not looking after its owners, then that could lead to difficulty in attracting new investors in the future. Moreover, shareholders have the right to vote on key management decisions in the company, so it is important to not create too much friction between management and shareholders. Therefore, a company should at spend an ample amount of time, money, and resources to making sure its stakeholders are rewarded for their decision to invest.
However, to say that shareholder value is the only meaningful measure of a company’s success is to fundamentally ignore the multidimensional qualities of a operating a business in today’s global and complex society. For one, brand value is important for a company’s long-term success. If customers do not recognize the quality of the services or goods provided by a company, the company is bound to suffer eventually. For example, the Japanese industrial manufacturing company IHI once decided to raise its quarterly dividend at the expense of advertising expenditures. As a result, IHI saw a decline in its brand value rankings, and analysts concluded that this had a significant indirect negative impact on the company’s bottom line, although difficult to quantify precisely. On the other hand, the Chinese internet search-engine company Baidu spent tens of millions of US dollars promoting its brand in China while giving out no dividends to shareholders; in retrospect, this was a smart move, since now Baidu is a known and used by most internet users in China.
A second important measure of a company’s success is its market share. Without growing its market share, a company will eventually be overwhelmed by its competitors. As stated in the famous business professor David Porter’s Five Forces Theory, the ability of a company to thrive is directly related to the ability of its products to win market share over competing products. Since companies can almost always save money by utilizing economies of scale in producing its products or services, a larger market share is desirable since it facilitates achieving such an economy of scale. Therefore, one should closely analyze the market share of a company’s products when assessing the company’s success.
In conclusion, focusing solely on shareholder value when evaluating a company’s success is a mistake. Other measures, primarily brand value and market share, offer important insight into what is true success for a company.
has made money for its shareholders.
To what extent do you agree or disagree with the opinion expressed above? Support your position
with reasons and/or examples from your own experiences, observations, or reading.
The issue of what is most effective for measuring a company’s success is a controversial topic. From one perspective, since shareholders are the owners of the company, its primary obligation should be to serve the shareholders. From another perspective, if a company does not take care to protect and improve upon its brand value and market share, the company may lose out to the competition in the long run. In the final analysis, the statement that the only thing that matters is shareholder value is too narrow-minded and insufficient for the success of a company.
Granted, most people concur that a company, especially a large company, needs to please its shareholders in order to operate smoothly. If a company develops a bad reputation for not looking after its owners, then that could lead to difficulty in attracting new investors in the future. Moreover, shareholders have the right to vote on key management decisions in the company, so it is important to not create too much friction between management and shareholders. Therefore, a company should at spend an ample amount of time, money, and resources to making sure its stakeholders are rewarded for their decision to invest.
However, to say that shareholder value is the only meaningful measure of a company’s success is to fundamentally ignore the multidimensional qualities of a operating a business in today’s global and complex society. For one, brand value is important for a company’s long-term success. If customers do not recognize the quality of the services or goods provided by a company, the company is bound to suffer eventually. For example, the Japanese industrial manufacturing company IHI once decided to raise its quarterly dividend at the expense of advertising expenditures. As a result, IHI saw a decline in its brand value rankings, and analysts concluded that this had a significant indirect negative impact on the company’s bottom line, although difficult to quantify precisely. On the other hand, the Chinese internet search-engine company Baidu spent tens of millions of US dollars promoting its brand in China while giving out no dividends to shareholders; in retrospect, this was a smart move, since now Baidu is a known and used by most internet users in China.
A second important measure of a company’s success is its market share. Without growing its market share, a company will eventually be overwhelmed by its competitors. As stated in the famous business professor David Porter’s Five Forces Theory, the ability of a company to thrive is directly related to the ability of its products to win market share over competing products. Since companies can almost always save money by utilizing economies of scale in producing its products or services, a larger market share is desirable since it facilitates achieving such an economy of scale. Therefore, one should closely analyze the market share of a company’s products when assessing the company’s success.
In conclusion, focusing solely on shareholder value when evaluating a company’s success is a mistake. Other measures, primarily brand value and market share, offer important insight into what is true success for a company.
