Sunday, 6 November 2011

Have the markets lost their moral moorings ? Ken Costa's shareholder value debate

Whether former Canon Chancellor of St Paul's Cathedral,Revd Giles Fraser or the Bishop of London's  appointee  Chairman of  the St Paul's Initiative, Mr Ken Costa see themselves as Salespeople or not, they have both managed to achieved top PR coverage in the British Press in the last fortnight.
The priest has been on the front page of the Guardian 28th October and Mr Costa on page one of the Sunday Telegraph Business supplement  6th November.
Mr Costa, the distinguished banker, has been described as a 'rainmaker' which is “City” speak for one who generates new business or additional cash flow – a salesman. A banker of 30 years experience with UBS and Lazards International.
The Revd Giles Frazier amongst many other things is a promoter of the Good News of the Gospel - an evangelist   -a salesman .

(Both Mr Costa and Revd Fraser are Christians)

Mr Costa is the spearhead of the new initiative of the Bishop of London to act as a bridge for the differences  between the protesters and the City.

"It will look at how the market has managed to slip its moral moorings, and explore pragmatic ways of uniting  the financial and the ethical"

"Is it still the case that the promotion of shareholder value is the object of all companies?"

Mr Costa has  put forward this notion


"The present duty on all boards to maximise shareholder value as the sole criterion for satisfying the return to shareholders cannot continue." Ken Costa

N. B.There is a new play on at the Donmar WarehouseDonmar called the Temple by Steve Waters  until the 25th July 2015

Related Link

The selling of Peaceful protest


  1. Hugh Appeal ;
    Extract from a friend's email to me today

    My MBA was highly critical of the
    'shareholder value' only approach for all sorts of reasons:
    - Leads to short term thinking
    - Tends to incentivise managers in some of the wrong ways
    - Doesn't take account of the many stakeholders in a business -
    lenders, employees, local authority and local residents, suppliers,
    - Tends to bring about moral hazard and simplistic approaches to complex issues.

    In the case of banks it should be banned as a criteria because we need
    banks with strong balance sheets and simple RoC measure invites banks
    to deploy thin working capital which can be disastrous$

    Businesses need to take into account a significant variety of
    stakeholders not just one narrow band. For instance, a locality or
    town may be a stakeholders; employees are stakeholders etc.

    Shareholders have to know that in the event of a bankruptcy, their
    rights come near the bottom of the pile. In a sense that says it
    all: the shareholder is but one stakeholder in the business.

    St Paul's has become the unwitting lightning conductor for some real
    malaise - across all strata of society - about our systems and
    priorities in how we manage capitalism and as an MBA I share those
    concerns too.

  2. It seems to me that if your sole aim as a business is to deliver shareholder value you have to deliver stakeholder value first; therefore by implication the answer must be no.

    Despite argument from many senior business leaders to the contrary, no commercial organisation carries out activities unless they are going to contribute to bottom line success - even legislation forced action prevents fines and injunctions. Companies don't comply or consider the wider impact of their decisions because it's the right thing to do - the alternative is too costly; either directly financially or longer term in the form of negative press and public image resulting in reduced shareholder value.

    Morally, the business must concern itself with what is right for all stakeholders and strike a balance without making a buck at all costs.

    In order to achieve shareholder value businesses must do the same.

  3. Fiona, So... marketing consulting8 November 2011 at 12:10

    My take is that the answer is Yes - it should not be the sole criteria. The points have been well made that it needs to be the ultimate aim as without the financial commitments you don't have a business. But shareholder value is not the only criteria, other stakeholders do have to be considered, as per the first post.

    If I dust off my MBA learning the need to increase net present value of profits and over emphasis on short term performance has been the issue with many organisations when this has been at the expense of long-term development of the business.

    Perhaps we shouldn't blame the model that must have been around for getting on for 20 years - its how it's been put into practice. A business in my view still has to be driven by its overall purpose and values - genuine ones that can be measured and behaviours demonstrated every day, not the just the glib ones or the flavour of the month ones. This gives you the strategic direction and the moral code by which you all work.

    Businesses are also 'valued' by other assets such as loyal, happy customers, their intellectual property and expertise - all of which take time to build and demand commitment, and do provide profits where the strategy is right and implemented well.

    The trick is attracting the stakeholders/investors who value this type of business over short-term dividends.