Do Companies need to re-look their mission and vision statements?
The Stock market like fate; is a fickle mistress.
Yesterday the corporate world was shocked by the disclosure about Satyam’s one billion dollar loss, or fudged accounts, depending on which way you look at things.
The consequences are of course shattering and the stock market has rewarded the former IT giant by drubbing its stock price by 80% in just one day. One of the interesting points made by Mr. Ramalinga Raju in his resignation letter and acceptance of guilt letter was that “we were riding a tiger and it was difficult to get off”.
Of course the tiger was the stock market and its expectation of high result.
This is not a new situation. The collapse of so many financial giants in the US has been partly due to the ever greater threat of dismal performance and management allowing greater risks to placate a fickle stock market. Over leveraging, risky financial instruments etc were pursued, to prevent loss on the Wall Street.
Does this again raise the question of the vision of an organization and a company’s belief in it, and the three questions associated with it:
1. "What do we do?"
2. "For whom do we do it?"
3. "How do we beat the competition?"
Should a fourth question now be asked, how do we placate a fickle stock market?
How many managements have the ability to sustain their vision like Gillette when it was faced by a hostile take over bid by Coniston Partners in 1988. At the price offered by the Coniston, the shareholders would have had an instant 40% gain. However Gillette under its CEO Coleman Mockler, did not bow to pressure and urged the shareholders to desist. Ultimately in the next 10 years the shareholders were rewarded by a performance almost 3 times better then that of the stock market.
How can one agree with Pablo Picasso when he said “It is your work in life that is the ultimate seduction”, in the light of the market reality?
Short term risk vs long term benefit. One should remember the following words of George Merck IInd:
“We try to remember that medicine is for the patient… It is not for the profits. The profits follow, and if we have remembered that, they have never failed.”
http://www.merck.com/newsroom/executive_speeches/120150.html
The Stock market like fate; is a fickle mistress.
Yesterday the corporate world was shocked by the disclosure about Satyam’s one billion dollar loss, or fudged accounts, depending on which way you look at things.
The consequences are of course shattering and the stock market has rewarded the former IT giant by drubbing its stock price by 80% in just one day. One of the interesting points made by Mr. Ramalinga Raju in his resignation letter and acceptance of guilt letter was that “we were riding a tiger and it was difficult to get off”.
Of course the tiger was the stock market and its expectation of high result.
This is not a new situation. The collapse of so many financial giants in the US has been partly due to the ever greater threat of dismal performance and management allowing greater risks to placate a fickle stock market. Over leveraging, risky financial instruments etc were pursued, to prevent loss on the Wall Street.
Does this again raise the question of the vision of an organization and a company’s belief in it, and the three questions associated with it:
1. "What do we do?"
2. "For whom do we do it?"
3. "How do we beat the competition?"
Should a fourth question now be asked, how do we placate a fickle stock market?
How many managements have the ability to sustain their vision like Gillette when it was faced by a hostile take over bid by Coniston Partners in 1988. At the price offered by the Coniston, the shareholders would have had an instant 40% gain. However Gillette under its CEO Coleman Mockler, did not bow to pressure and urged the shareholders to desist. Ultimately in the next 10 years the shareholders were rewarded by a performance almost 3 times better then that of the stock market.
How can one agree with Pablo Picasso when he said “It is your work in life that is the ultimate seduction”, in the light of the market reality?
Short term risk vs long term benefit. One should remember the following words of George Merck IInd:
“We try to remember that medicine is for the patient… It is not for the profits. The profits follow, and if we have remembered that, they have never failed.”
http://www.merck.com/newsroom/executive_speeches/120150.html
3 comments:
It’s not just a question of just over leveraging and changing statements. Why can't companies like Satyam show little more transparency? Satyam was doing well anyway, now its reputation is ruined. If they really wanted to bail out their company, I'm sure there were better options than, fudging accounts and using company funds to bail out Maytas. Bad market is a time for improving business efficiency not shortsighted decisions.
If Mr. Ramalinga Raju wanted to bail out Maytas, he could have at least taken all shareholders into confidence. Some of them certainly would have the capacity to buy Maytas Infra shares, to provide them the much needed liquidity. Maytas could have easily raised funds from bond/liquidity market. After all better infrastructure would help the businesses in the long run. Infrastructure is thus a good investment, even in this fickle market. A potential investor would have understood how it increases the worth of their stocks.
It goes without saying. Better corporate policy, corporate governance and transparency should form part of 'Missions and Vision Statements' as well as corporate strategy. Even, the investors reward it since it reduces risk.
The background check by market regulators should include level of corporate governance in a company, before letting it trade on a stock exchange. It’s a question of reputation at global level.
YOUR QUESTION: Can a fickle stock market negate the vision of a company, and force it away from its vision a la Satyam?
Hi, Sunol:
Yours is a great question, and certainly of concern to most CEOs. And yes, the stock market's reaction to a company can distract its CEO.
However, I don't think CEOs should placate a fickle stock market, period. They should simply concentrate on their companies' long-term growth and constantly add value by improving profits from operations, and not trying to please the stock market itself by other means.
For example, I am routinely amazed at CEOs timing the stock market and their own company stock very badly.
This regardless of size, as many large corporations have timed their share buy-back programs very badly, overpaying by $billions in some cases.
If you don't have good timing, you should not try to placate the market. And if you have good timing, you do not need to placate the market at all.
For some good timing, see link below:
Link:
http://forecasts.com
YOUR QUESTION: Can a fickle stock market negate the vision of a company, and force it away from its vision a la Satyam?
Hi, Sunil:
Yours is a great question, and certainly of concern to most CEOs. And yes, the stock market's reaction to a company can, and often does, distract its CEO.
However, I don't think CEOs should placate a fickle stock market, period. They should simply concentrate on their companies' long-term growth and focus on adding value by improving profits from operations, and not trying to please the stock market itself by other means.
For example, I am routinely amazed at CEOs timing the stock market and their own company stock very badly.
This regardless of size, as many large corporations have timed their share buy-back programs very badly, overpaying by $billions in some cases.
If you don't have good timing, you should not try to placate the market. And if you have good timing, you do not need to placate the market at all.
For some good timing, see link below:
Link:
http://forecasts.com
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