The introduction of shareholder value is known to have changed global business practices greatly. Maximizing shareholder value, which was initiated a few decades ago, led to the increase in profits and the enhanced development of organizations. International enterprises benefit from such an approach because it enables them to grow earnings and sales. The paper focuses on the analysis of the establishment and progress of the shareholder value concept and its impact on global business.
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The concept of shareholder value originated in the 1970s, and it became the prevailing business model in the second half of the 1980s (Heilbron, Verheul & Quak 2014). The reason why this issue has become so significant in the sphere of business was that Western economies had been governed by large corporations for a long time. As a result, chief executives started arranging the cooperation with specialists who were proficient in the dominant business conception (Heilbron, Verheul & Quak 2014). The major group was formed by organization and production professionals who were followed by marketing and financial specialists. In the last twenty years of the previous century, there occurred a huge transformation in the sphere of business. Organizations were governed by relative outsiders who had no direct relation to company affairs, did not have any accountability for the organization’s activity, and had limited knowledge of business prospects and market conditions.
Henderson et al. (2002) consider value as one of the main constituents of the global production network (GPN). By value, scholars understand “Marxian notions of surplus value” and “more orthodox” concepts related to economic rent (Henderson et al. 2002, p. 448). Henderson et al. (2002) define the following issues as crucial for understanding value: creation, possibilities for value to be captured, circumstances for it to be enhanced, power, and embeddedness. Out of all these issues, shareholder value is most closely associated with the enhancement (Henderson et al. 2002). The conditions under which value can be promoted incorporate the extent of technology transfers, the degree to which organizations connect with subcontractors and suppliers, the possibility of local companies to increase skills, and the ability to develop relational and brand rents.
In their analysis of maximizing shareholder value, Lazonick and O’Sullivan (2000) remark that such value increases economic opportunities and is capable of changing the corporate strategy. According to Lazonick and O’Sullivan (2000), the concept of shareholder value is considered the most prominent one when it comes to corporate governance. As a result of initiating this practice, considerable changes in market control appeared, leading to the powerful support for large corporations in particular and the economy in general. Takeovers that emerged from shareholder value enabled managers to gain better control of organizations (Lazonick & O’Sullivan 2000). Furthermore, such takeovers helped companies to meet their financial requirements and to “push up” the market for corporate governance that was the only possible measure of corporate performance (Lazonick & O’Sullivan 2000, p. 18). Thus, shareholder value is considered the most efficient approach to corporate governance.
A crucial point to take into account when analyzing the concept of shareholder value is the arrangement of labor reserves based on transnational outsourcing (Merk 2011). As Merk (2011) remarks, such a method enables business owners to access a large number of employees without having to initiate formal relationships with them. Further, shareholder value allows global buyers to separate their firms from labor-intensive production efforts. As a result, there is no need to cope with wages issues, work conditions, and the environment (Merk 2011). What is more, shareholder value is also viewed from the point of view of gender reproduction (Elias 2005; Merk 2011). It is noted that this concept makes it possible to eliminate the difficulties concerned with organized labor resistances (Elias 2005). Thus, with the help of shareholder value, global business owners become able to employ relocation as the adjustment of profitability crises and labor control.
As Heilbron, Verheul, and Quak (2014) mention, shareholder value has become the dominant vision of international businesses. While in the beginning, the term was employed by corporate raiders in their conflicts with managers, later it started to be used by a variety of business actors. Shareholders became acknowledged as significant participants of business processes. Such an acceptance had two major aims. Firstly, managers could lower the risk of the growing power of shareholders. Secondly, managers started to be more collaborative towards shareholders and their firms (Heilbron, Verheul & Quak 2014). Consequently, the growth of shareholder value was noted as the key business goal.
The role of shareholder value in the development of international business practices cannot be underestimated. This concept helps managers to increase sales, add value, and enhance the free cash flow. Although the idea has been in operation for only several decades, it has demonstrated considerable impact on global business collaboration. Shareholder value depends on such factors as creation, power, and possibilities to be captured and enhanced. This concept helps managers to make thoughtful investments and grow the share price, as well as raise cash dividends.
Elias, J 2005, ‘The gendered political economy of control and resistance on the shop floor of the multinational firm: a case-study from Malaysia’, New Political Economy, vol. 10, no. 2, pp. 203-22.
Heilbron, J, Verheul, J & Quak, S 2014, ‘The origins and early diffusion of “shareholder value” in the United States’, Theory and Society, vol. 43, pp. 1-22.
Henderson, J, Dicken, P, Hess, M, Coe, N & Wai-Chung Yeung, H 2002 ‘Global production networks and the analysis of economic development, Review of International Political Economy, vol. 9, no. 3, pp. 436-64.
Lazonick, W & O’Sullivan, M 2000, ‘Maximizing shareholder value: a new ideology for corporate governance’, Economy and Society, vol. 29, no. 1, pp. 13-35.
Merk, J 2011, ‘Production beyond the horizon of consumption: spatial fixes and anti- sweatshop struggles in the global athletic footwear industry’, Global Society, vol. 25, no. 1, pp. 73- 95.