I just found this interesting Harvard piece that may help those of you who are disappointed with Mr. Waggoner. Perhaps an insight to his reasoning can be found (or not) within these excerpts.
....Taking responsibility for something one is incapable of doing has never been a particularly good idea. Politicians get in trouble for promising their electorates that they can fix the economy when they can’t. Money managers get in trouble when they tell their clients that they will beat the market when they can’t. The only thing of which we can be sure is that in due course the promise-taker will be disappointed and the promise-giver will be frustrated. And in due course, disappointment and frustration turns to anger and recrimination for both sides.
....This same sad story plays out between modern CEOs and their shareholders. CEOs promise that they will increase their ‘shareholder value’ and dedicate themselves to that task. But shareholder value increases only when expectations of future performance increase from its current level and no CEO can keep their company marching ahead of expectations forever.
....Trying to raise expectations indefinitely is not only impossible, it’s positively damaging. CEOs saddled with high expectations feel compelled to take risky actions to try to do the impossible in order to generate still more overblown expectations. CEOs who are the beneficiary of low expectations will take shareholders to the cleaners by making boatloads of stock-based compensation by simply hanging around and waiting for expectations to float up to their natural level.
....CEOs strive to increase shareholder value because they think it is the right thing to do (their moral obligation) and are reinforced in this belief by their boards that provide them incentives for doing just that. It isn’t ‘the right thing to do’ and boards shouldn’t encourage them to think it is. The fact is, despite their belief to the contrary, neither boards nor management actually owe public shareholders an attractive return on the market value of the stock they purchased.
....The fallacy is that CEOs think that they have an obligation to earn an attractive return for shareholders who purchased their shares from an existing shareholder at above the price at which those shares were sold out of the corporate treasury. The only shareholder to whom the CEO owes anything is the shareholder who provided capital to the company. That shareholder deserves a return at the cost of equity on that initial investment.
....In the long run, companies would be healthier and their shareholders better off if their CEOs only sought to earn a return on the capital provided to them by shareholders, i.e. their book capital not their market capital. Enshrining that in the mission statements of America’s corporations would be a great place to start.
Good night all.
Go PharmaCyte!!!
