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  • Diana Schneidman

Why all is right with the world:

Insights on the BP disaster

Companies exist to maximize shareholder value.

I know this because Jack Welch, former CEO of General Electric, said so. (And Wikipedia said that Welch said so.) Though apparently Welch reversed himself in 2009 when he called the concept “the dumbest idea in the world.”

Anyway, it must be true. The sun rises in the east. Applies fall downward from trees onto our heads. And companies exist to maximize shareholder value.

BP’s shortcuts saved time and money for the company, maximizing shareholder value.

Except there was a screw-up.

Ooops! We simply have to look at the big picture.

This one time the company lost a boatload of bucks and maybe put themselves out of business, but only after making lots of moolah for shareholders.

Even better, the company’s competition for shareholder investments motivated other companies to function the same way so shareholders of many companies participated in the success.

Except this one time.

Well, you win some, you lose some.

It only makes sense to please shareholders before all others because among all stakeholders, their ties to a company are most tenuous. If they don’t make money fast, they’ll reinvest their money somewhere else without a second thought. Heck, some shareholders have even automated the process.

They need short-term gains or they’re out of here.

Now the good news: intelligent investors are heavily diversified. If one business expires, the impact on their overall portfolios is minimal.

So put the pedal to the metal. Maximize profits for all companies as aggressively as possible, and if a few companies fail along the way—and negatively impact the environment, society or whatever—it doesn’t matter because the extra profits of business overall outweigh a random disaster or two.

And if this doesn’t seem fair to you, just be glad you’re not a pelican.

P.S. If you’re researching this, the philosophy described here argues for shareholder value. The opposite concept is called stakeholder value, where a company’s worth is measured by a combination of factors, including usefulness to society, employee well-being, and of course, shareholder value.

Originally posted 6-21-10

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