In recent years the problems created by shareholder value as a principle of corporate governance became topic of broad discussions. This thesis tries to answer the question if corporate culture could be able to prevent the problems and risks that emerge by shareholder value. In a first step the concepts of shareholder value and corporate culture are analyzed and defined in detail. For the purpose of this thesis the phenomenon of value is explained as sustainable long-term profit for investors. Secondly, the problems of shareholder value as a principle of corporate governance is examined and it is shown that the main issue in this context is the lack of mutual trust between interest groups within corporations and the moral dilemma resulting from this.
Thereafter by comparing corporate culture in different countries it is demonstrated that the German approach in corporate culture is the most convenient in order to create mutual trust. Nevertheless the results of this thesis yield that corporate culture has to be developed over time and cannot be introduced a priori by imposing a new corporate identity. In order to create a strong corporate culture which could solve the moral dilemma an environment of mutual trust between employees, executive officers and shareholders has to be established.
Table of Contents
1 Introduction
2 Shareholder value
2.1 History of shareholder value
2.2 Main points of critique
2.3 Analysis of the concept
2.4 Shareholder value - a mistaken principle?
2.5 Value-investing
2.6 Corporate executives - transgressors or pursued?
2.7 The Enron-case
3 Corporate culture
3.1 Corporate culture as solution to the dilemma
3.2 Differences between countries
3.3 German corporate culture as key to sustainability?
3.4 Common objectives as fundament of corporate culture
3.5 Can classical corporate culture be re-established?
3.6 Comparison: corporate culture - corporate identity
3.7 Which kind of value gets created?
3.8 Limitations of models
4 Conclusion
5 References
Goal and Research Focus
This thesis examines whether a revival of corporate culture can mitigate the risks and moral dilemmas associated with the shareholder value principle in modern corporate governance. It seeks to determine if corporate culture can serve as a regulatory mechanism to shift corporate focus from short-term profit maximization toward long-term sustainability.
- The historical development and critique of the shareholder value concept.
- The relationship between mutual trust, moral dilemmas, and corporate governance.
- A cross-country analysis of corporate culture, with a focus on the German and Japanese approaches.
- The distinction between corporate culture and corporate identity as drivers of organizational success.
- The potential for integrating sustainable business strategies with shareholder interests.
Excerpt from the Book
2.7 THE ENRON-CASE
In their book “Enron – the smartest guys in the room” Bethany McLean and Peter Elkind (2005) analyzed the bankruptcy of Enron. It was one of the ten biggest corporations in the United States, from 1996 until 2001 the Enron shares increased steadily. The corporation chose shareholder value as core principle of corporate government and cut costs drastically to ensure maximum profits. Therefore at the end of every year, the lowest-performing 10% of employees were discharged. But in 2001, suddenly within few months the value of the stock dropped from more than 90$ to less than 10 Cents. While the leading executives sold their shares at their all-time-high, the employees who had on average over 40% of their pension savings invested in Enron stocks were not allowed to sell their shares because of US-pension-savings regulations.
During the lawsuit which was fought by the stock exchange supervision (SEC) against the company’s executives, it was found that the leading managers knew about the desolate situation of the company from the beginning of 2001 but nevertheless animated their employees to invest their pension-savings into Enron. As soon as the company began to unhinge, leading Enron executives contributed strongly to the fast decrease in market value by selling all their shares. They even falsified the balance sheets of the corporation by booking expected future income as already realized and ignoring future spending and debts (Elkind 2005).
Chapter Summaries
1 Introduction: Provides an overview of the post-2007 financial crisis context and introduces the research question regarding the role of corporate culture in enhancing economic sustainability.
2 Shareholder value: Analyzes the history and critique of the shareholder value principle, illustrating the moral dilemmas it creates through cases like Enron and the principal-agent theorem.
3 Corporate culture: Investigates corporate culture as a potential solution to organizational mistrust, comparing national approaches and distinguishing between corporate culture and corporate identity.
4 Conclusion: Summarizes the findings, arguing that while corporate culture cannot be imposed, building an environment of mutual trust is essential for long-term sustainable value creation.
5 References: A comprehensive list of academic and professional sources utilized throughout the thesis.
Keywords
Shareholder Value, Corporate Culture, Corporate Governance, Corporate Identity, Sustainability, Mutual Trust, Principal-Agent Theory, Value-Investing, Enron, Long-term Profitability, Moral Dilemma, Economic Crisis, Stakeholder Value, Innovation, Management by Objectives.
Frequently Asked Questions
What is the core problem addressed in this thesis?
The thesis addresses the risks and moral dilemmas caused by the principle of shareholder value, specifically the focus on short-term profit at the expense of long-term economic sustainability.
What are the primary themes explored?
The core themes include the definition and critique of shareholder value, the development of corporate culture as a stabilizing force, and the importance of trust within corporate interest groups.
What is the primary research goal?
The goal is to determine if a revival of the concept of corporate culture can prevent the problems associated with shareholder value and if it is compatible with modern globalized business.
Which methodology is employed?
The author uses a qualitative approach, analyzing economic literature, historical examples (such as the Enron case and the development of Toyota), and theoretical models to evaluate the effectiveness of different corporate governance strategies.
What topics are discussed in the main part?
The main part covers the historical roots of shareholder value, its critique by figures like Fremund Malik, the definition of value, and a comparison of corporate cultures in Germany, Japan, and the United States.
Which keywords best characterize the work?
The work is characterized by terms such as Shareholder Value, Corporate Culture, Sustainability, Mutual Trust, and Principal-Agent Theory.
How does the author define "value"?
For the purpose of this thesis, value is defined not just in nominal financial terms, but as sustainable long-term profit and comparative advantage for investors and stakeholders.
Why is the Enron case used as an example?
Enron is used to illustrate the moral bankruptcy that can occur when the pursuit of shareholder value is taken to extremes, leading to illegal practices and the betrayal of employee trust.
What distinction is made between corporate culture and corporate identity?
The author argues that corporate identity is a superficial marketing tool, whereas true corporate culture is an informal, historically developed concept based on mutual trust and shared objectives.
What is the conclusion regarding the German approach to corporate culture?
The author concludes that the German approach, which seeks a synthesis between the interests of shareholders and stakeholders, is the most effective model for fostering mutual trust and long-term sustainability.
- Quote paper
- Michael Frei (Author), 2012, Does Shareholder Value Require a Revival of Corporate Culture?, Munich, GRIN Verlag, https://www.grin.com/document/230772
