Predominately shareholder wealth maximisation is the common goal for most medium and large corporations in the market place. But as the effects of the economic downturn of 2008 continue to worsen it begs to reason if this is still the right approach.
The ever-increasing egos of todays market leaders demand more and more from their investment returns. The outcome? The new found need for triple line profits. Any less and the fickle market place throws out its companies regardless of their historical or social presence.
We have seen popular even iconic brands like Woolworths, habitat, Jane Norman and La Senza fall victim to the drop and run mentality of the collapsing market place. It seems that markets are just not willing to hold onto respectable long serving brands unless they are seeing the best possible returns. Shareholders prefer to quit when the going gets tough, rather than riding the storm. This is prolonging the current downturn rather than tackling inefficiency.
The hype behind shareholder value and wealth has become so central that the overall needs of the economy and stakeholders has been side lined. The ruthless closure of some of these brands has further increased unemployment and further broadened the north south divide. Furthermore experts are witnessing a ‘dying’ high street particularly in smaller out of town areas adding to social problems.
The hype behind shareholder value and wealth has become so central that the overall needs of the economy and stakeholders has been side lined. The ruthless closure of some of these brands has further increased unemployment and further broadened the north south divide. Furthermore experts are witnessing a ‘dying’ high street particularly in smaller out of town areas adding to social problems.
Popular marketing expert Mary Portas has joined forces with the new government to try and recover some of the failing high streets out there today (http://www.bbc.co.uk/news/business-16156971).
However ultimately the control still lies within the hands of the shareholder who are less than empathetic of the needs of their employees and the high street.
What the shareholders are failing to recognise is that if there is no high street then potentially, there will be no market place. As unemployment subsequently rises, society will not be able to afford the services or products available. As each market crumbles another will prevail until eventually we are living back to basics. Trends are already pointing towards an increase in a 'do it' yourself mentality with people growing their own produce and making their own clothes.
Mothercare is a great example of how having a strong store portfolio is, these days, a risk to potential shareholders rather than a reward. As we see Mothercare dwindle into uncertainty following pre tax losses of £81.4 million at the last half, it begs the question as to what could have possibly gone wrong for this long serving retailer?
Chairman Alan Parker has pointed towards a 'structural and operational review' of the business suggesting internal issues. Perhaps that of the separation of ownership and control following the departure of Chief Exec Ben Gordon. But Mr Gordon isn't your typical greedy board member. Other than perhaps an unnecessarily extravagant party held in canary warf last year to celebrate Mothercares 50 year anniversary, the long serving directors slate remains clean.
More likely is that issues at the source of this companys struggles are that of weak competitive strategy not managerialism. In mothercares case the lack of online presence - again returning to the argument I touched on earlier; is it right for mothercare to then ruthlessly shut down stores and focus on the more profit savvy Internet business? Or is this in the long term going to cause more issues?
This issue highlights the limits of value maximisation. Shareholder wealth can be a good score keeping method but ultimately it does not take into account a businesses value or presence. Kiddicare has fast became Mothercares biggest rival despite only being available online. By doing so they can offer greater discounts due to lower overheads.
Already Mothercare have closed 110 stores causing 250 redundancies. Although they have managed to redeploy, how many more stores are we going to see lost before there can be any improvement? As unemployment worsens and high streets continue to be boarded up, how can the economy ever improve with such a reliance on the retail sector for jobs?
This is why I believe that in order for the UK economy to ever recover our business leaders need to be less concerned with shareholder wealth, instead taking on Jensons Enlightened approach. Society relies on the retail sector and we can not afford to lose the presence of the high street both socially and strategically.
If markets want the UK economy to return to its former glory there needs to be more investment across all business sectors. This can only happen if share value is not based on squeezing the most profit out of an already weak situation. Value needs to be greater placed on presence and value to communities.
The government should consider greater investment in small businesses and rent relief for struggling established businesses. But with unemployment continuing to rise government funds are already being stretched by increases in benefit payouts. The cycle continues.
Responsibility must therefore lie within the business sector who have benefited greatly by consumerism by the tax payer for many years. Its time that organisations gave something back to society and without their investments I fear we can never recover.
(http://www.guardian.co.uk/business/2012/feb/04/north-south-divide-job-loses)
(http://www.bbc.co.uk/news/business-16881291)
(http://www.thisismoney.co.uk/money/news/article-2083537/The-High-Street-suffers-online-sales-boom.html)
(http://www.bbc.co.uk/news/business-16156971)
(http://www.guardian.co.uk/business/marketforceslive/2012/jan/27/mothercare-competition-fears?INTCMP=SRCH)
(http://www.ft.com/cms/s/0/1996d6ea-2cd4-11e1-b485-00144feabdc0.html#axzz1lYYgQ38q)
(http://www.ft.com/cms/s/0/3e1b263c-10fb-11e1-ad22-00144feabdc0.html#axzz1lb4y33lZ)
(http://www.ft.com/cms/s/0/7db30eae-f418-11e0-8694-00144feab49a.html#axzz1lb4y33lZ)
(http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8820299/Profile-Mothercares-Ben-Gordon.html)
(http://www.ft.com/cms/s/2/fb379578-80f0-11dd-82dd-000077b07658.html#axzz1lb4y33lZ)
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