Shareholders, value creation and all that bushllit

The traditional theories of corporate finance have 2 viewpoints. They are,

• Shareholder value maximization is much more important than growing ones own limbs, stealing office stationary and gossiping at the water cooler.
• No one ever bothered to read the second bullet point.

But the world from now onwards is not going to be like that. I am here to enlighten the poor and downtrodden of the management who is loosing their peace, naps and valuable time in which they could have flirted with their secretaries over creating value for some samosa eating and idiot box watching shareholder.

What are my qualifications? You might ask. Well, I am the last one to crash on the desk in corporate finance classes. We can talk extensively about my unfathomable conceptual understandings in the financial domain, but lets save it for better days of your life. Coming back to where I let your mind wander, the second or alternative perspective to so-called value creation, without any further wastage of keystrokes is presented below.

Part 1:

Most of us including the least productive management wizards innately believe that we should be getting more than what we are paid. Let me help you in understand this. I have performed a survey on the laziest person I ever knew – ME. I asked myself “how much should I be paid after I pass-out” The answer came in no time. “12 lakhs per annum, stock options, free house and a car with chauffer, laptop, training in Bahamas and Paris, 3lakhs sign-on bonus, retirement benefits and of course insurance coverage.” But looking at the market situation I might get a “6 lakhs per annum, no stock options, shared accommodation with three other idiots, local train fares, training in rural Bihar and interior UP, 15,000 sign-on bonus, no retirement benefits and one year health insurance coverage” And that is the best case I am talking about. We can thus establish that,

If we are paid ‘x’ we expect more than ‘2x’

Part 2:

The other side of this not-so-romantic story. I once interacted with a HR manager, and I asked, “how much of value addition do you expect from a person whom you pay ‘x’”. The manager replied, “we expect him to make at least double that.” Then I asked myself “If I am paid ‘x’ when I am expecting ‘2x’, how much would I produce?” I knew the answer faster than HR manager did for his question – ‘x/2’. We can safely conclude that,

If we are paid ‘x’ then we are expected to produce ‘2x’, where as we produce only ‘x/2’

The idiot’s curse or the second bullet you never cared to read:

Now lets assume the company you or me work for is making 30% profits YoY in stock market as well as real life. The new theory of value addition is,
Resign from the company, invest ‘x’ in the same company where you worked, switch on the TV and start eating samosas while the remaining not-so-intelligent managers strive to create value for you – 30% every year. In theory it takes 2.64 years to get your money back, in practice it might be even less, considering that the company just lost an employee who is making ‘x’ in return producing only ‘x/2’.

I call this ‘idiot’s curse’. This may not sound logical, but it’s certainly better than the shareholder value maximization by cutting your leg theory.

So long, see you at the idiot box then.

Hello Awesome...

My name is Chandoo. Thanks for dropping by. My mission is to make you awesome in Excel & your work. I live in Wellington, New Zealand. When I am not F9ing my formulas, I cycle, cook or play lego with my kids. Know more about me.

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