From Mr Guillaume Prache
Sir, The misguided condemnation of shareholder value by Mr Martin Wolf («Opportunist shareholders must embrace commitment», August 26) is based on a profound misunderstanding of what creating shareholder value is about.
The financial crisis has understandably motivated decision makers and stakeholders to find out what caused it. Amongst others, the concept of shareholder value is suffering unwarranted criticism and has come under fire from those looking for scapegoats.
Attacks on shareholder value, such as the one by Mr Wolf, consistently demonstrate a misunderstanding of the concept. Whereas the term has been misused by corporate executives to justify their actions, critics should be careful not to confound shareholder value with stock price maximisation.
Decisions aimed solely at increasing the stock price in the short term, are often at direct odds with shareholder value principles. This narrow-minded view fails to take into account the long-term, engaged relationships that retail investors have with companies. Creating shareholder value implies long-term thinking, including capital spending, research and development and investment in human capital.
Furthermore, Mr Wolf fails to differentiate between the different shareholders such as high frequency traders, institutional shareholders and individual ones. Surely the interest taken in the long-term wellbeing of a company differs widely between a high frequency trader and an individual shareholder looking for a durable investment.
Guillaume Prache, Managing Director, European Federation of Financial Services Users, Brussels, Belgium
Contact details:
Guillaume Prache, Managing Director European Federation of Financial Services Users (BETTER FINANCE) ǀ Phone +32 (0)2 5143777, Mobile +32 473529827, Email prache(at)betterfinance.eu
Arnaud Houdmont, Communications Officer, BETTER FINANCE ǀ Phone +32 (0)2 5143777, mobile +32 485620054, Email houdmont(at)betterfinance.eu