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A lot of people have had a lot of things to say about “maximizing” returns to shareholders the last couple of days. Here are a few things to keep in mind...
1/12
“shareholders” aren’t all the same, and they have wide-ranging views about what “maximizing” returns means to them. Shareholders are investors, which is to say “people” and their investment desires are as different as all people are different. 2/12
Some people desire high rates of return over short time horizons, even if it comes with more risk. Some like the steady, simple returns of index funds. Some invest regardless of returns, in companies with products they use, or because they liked what @jimcramer said. 3/12
Some will invest in firms that seem completely disinterested in ever generating any profits at all. 4/12
And as we’ve seen in stark relief in recent months, some investors are perfectly content with NEGATIVE financial returns, maybe because they have a safety or liquidity preference. 5/12
Firms have a responsibility to respond to the investment desires of their shareholders. 6/12
It’s also important to remember that many of these shareholders/investors/people are demanding that firms be more conscientious of the firm’s relationships with the world around them. 7/12
They have very specific views of what makes a great firm. It’s a corruption of capitalism that corporations should be indifferent to the desires of those shareholders. 8/12
Also a corruption of capitalism is the idea that firms should be indifferent to their employees. It’s also dumb. As with financial capital, human capital will gravitate to firms that meet their desires. There might have been a time when workers were indifferent... 9/12
...but that’s not the world we live in today. Not everywhere, not in every sector, but workers increasingly see their employer as part of their identities. Being proud to wear the company hat is at least—if not more—important than compensation. 10/12
Also increasingly, talent will win out. Collecting the best talent in any industry is the most important factor for successful firms. Ignore the desires of the best talent at your peril. 11/12
I believe that over the long-term the best, most durable, AND most profitable companies will meet the desires of all their stakeholders. It’s not a trade-off. 12/12
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