Tan Kin Lian's Blog: Maximise shareholder value

Monday, July 13, 2009

Maximise shareholder value

During the past 15 years, Singapore businesses have adopted the concept of maximise shareholder value. This is implemented not only in the private sector, but in the government-linked companies also. This concept has led to salaries of top executives ballooning to several million dollars a year.

There are several flaws in this concept, as stated in this article. It is this concept that has led to the widening income gap in Singapore. Shareholder value is enhanced, when wages are depressed or profits are made at the expense of fair treatment of customers.

I hope that this flawed concept is changed soon.

Tan Kin Lian

4 comments:

Anonymous said...: Equitable life Assurance, a very old company, deviated from conservative time tested strategy in pursuit of growth, market share by reshaping and tempering with bonus. The report below.

That is not my analysis, but the analysis of Lord Penrose himself. He finds that, from the early 1970s, the society embarked on a growth strategy that resulted in the progressive financial weakening of the society, such that its ability to meet the long-term expectations of its policyholders was in doubt from the late 1980s onwards.

Lord Penrose describes how the company deliberately ran down its inherited estate and then, in the 1980s, moved into deficit to keep up bonus levels and win market share. According to Lord Penrose, sustained growth became an independent objective pursued with something approaching missionary zeal. He adds:

"Bonus policy became central to achieving the Society's marketing objectives"

and that

"the surplus published by the Society became a function of the desired level of bonus."

He outlines how, in 1973, the society introduced the concept of a terminal bonus and then, in the 1980s, progressively shifted the bonus mix away from annual guaranteed reversionary bonuses towards terminal bonuses, which were not covered by reserves. That allowed the society to inflate bonus levels to a level higher than available assets would have implied.

A deja vu?; July 14, 2009 12:52 AM
Redstar said...: The world has become a big casino. Many CEOs gambled with other people's money. The GREED of those entrusted with authority motivates them to take riskier bets for personal gains. There are no margins for error. I remember the rogue traders who brought down Barings Bank and Societe Generale. And the bright chap from China Aviation Oil, who was once considered one of the best CEOs in Singapore.; July 14, 2009 2:47 PM
Anonymous said...: Are our local insurers using this practice? low annual bonus and high non guaranteed special bonus. High projection.Can they deliver? To keep up do they need to resort to Ponzi scheme? Sell more policies to pay off the matured policies. Pay high commission to insurance agents to sell more so more revenue to provide the cash to pay off the old policies.
Bad times still pay so customers think that the insurers are solid and more sales and more money flow in and to flow out in another direction. This must continue and cannot stop and there will come time when inflow gathers pace , faster and faster to keep up with out flow. Then burst then collapse then there goes an old old company, once was a solid company.
Prudence? which ceo would not claim that?; July 14, 2009 6:23 PM
Anonymous said...: Time will tell whether the restructuring of bonus or the industry best practice of focusing on special bonus will deliver the desired result is closely watched .
Hope that none will do a Equitable Life Assurance.; July 15, 2009 12:48 AM