Hello Savio,

See my response to Ashok below. I think that Mr. Krishnan is saying that not only should businesses do what they say they are going to do, but that they ought to mean what they say, and do what they say, too. In speaking with him I thought he would make a lovely advocate for something that I believe drives long-term value for firms. Namely, organizations with passion, that are driven by an actual mission or values system that inspires in-house alignment, and out-in-the-real-world results.

Regarding the shareholder value vs. stakeholder value conversation...I will weigh in with two observations not knowing if this is ground already covered elsewhere. First, as an analyst an understanding of the business via its financial statements is critical. The income statement can be viewed as the stakeholder return statement. Namely, starting with the top line, revenues, you see monies paid to a business by its customers. So customers must be satisfied, else there is diminishing revenue. Next up, you pay the suppliers of the business as accounted for by cost of goods sold. Push too hard on your suppliers and they don't do business with you for very long. If you don't push hard enough then the supplier's shareholders are dissatisfied. So company management must have good relationships with its suppliers. Moving down the income statement we next pay employees with SG&A. If employees are dissatisfied with their work, total compensation, and pay then they vacate the firm and the firm has no one to execute the business plan. So management must satisfy this group of folks, too. Then there is R&D, which is a form of investment in the firm that everyone has a vested interest in, because the R&D drives long-term top line growth. Then you have to pay your debt-holders and treat them well. Violate a covenant, miss an interest payment, and this class of stakeholders can put the firm in technical default, thus raising the required rates of return for the firm and cutting them off from the cheapest capital to which they have access. Next is the taxing authority. Irritating the jurisdictions in which firms operate is a prescription for regulatory hell. At long last you come to shareholders. But funds only dribble down this far if the firm's management have ably managed all of the lines above the bottom line. My point is that firms are already managing the business for the benefit of stakeholders. In fact, the long-term viability of the business insists that they do so. If any one of the constituents in the income statement is peeved they can induce pain for the entire organization. Wise management manages everything.

Second point, when we say that we manage the business for shareholder value we imply that there is only one type of shareholder. Yet, there are HFT firms that hold shares for milliseconds; day and momentum traders; growth funds; value funds; pension funds; and so forth. Each of these shareholders has a different set of priorities, including some that are only 'invested' because they like the volatility in the stock and would prefer massive fluctuations; different investment time horizons; and different constituents to whom they answer. So when we say that a firm should be managed to maximize shareholder value, which shareholder are we talking about? The typical answer from the shareholder value community is the long-term shareholder. I would reply with two questions, 1) what is long-term?; and 2) if firms are, in fact, managing for shareholder value, and the definition of shareholders is long-term shareholders, then firms must be doing a very bad job of this because turnover ratios are extremely high and getting higher, so what can be done to change this equation? And this in the face of record profitability. So which shareholder should management focus on? And what are the data that show that this is wise and prudent?

Completely separately, I am so pleased to read that you enjoyed The Intuitive Investor. I invested much time, energy, money, and reputation to bring it to fruition because I believed that the ideas within deserved to be a part of the conversation.

Yours, in service,

Jason