Yes, of course, we have heard of shareholder value. But that does not change the fact that we put customers first, then workers, then business partners, suppliers and dealers, and then shareholders. Dr. Wendelin Wiedeking, CEO, Porsche, Die Zeit, April 17, 2005.
Porsche had always been different. Statements by Porsche leadership, like the one above, always made Veselina (Vesi) Dinova nervous about the company’s attitude about creating shareholder value. The company was a paradox. Porsche’s attitudes and activities were like that of a family-owned firm, but it had succeeded in creating substantial shareholder value for more than a decade. Porsche’s CEO, Dr. Wendelin Wiedeking, had been credited with clarity of purpose and sureness of execution. As one colleague described him: “He grew up PSD: poor, smart, and driven.” Porsche’s management of two minds had created confusion in the marketplace as to which value proposition Porsche presented. Was Porsche continuing to develop an organizational focus on shareholder value, or was it returning to its more traditional German roots of stakeholder capitalism? Simply put, was Porsche’s leadership building value for all shareholders, including the controlling families, or was it pursuing family objectives at the expense of the shareholder? Vesi had to make a recommendation to her investment committee tomorrow, and the evidence was confusing at best.
Shareholder Wealth or Stakeholder Capitalism?
Vesi’s dilemma was whether Porsche—Porsche’s leadership—was increasingly pursuing shareholder wealth maximization or the more traditional Continental European model of stakeholder capitalism. Shareholder Wealth Maximization. The Anglo-American markets—the United States and United Kingdom primarily—have followed the philosophy that a firm’s objective should be shareholder wealth maximization. More specifically, the firm should strive to maximize the return to shareholders, as measured by the sum of capital gains and dividends. This philosophy is based on the assumption that stock markets are efficient; that is, the share price is always correct, and quickly incorporates all new information about expectations of return and risk. Share prices, in turn, are deemed the best allocators of capital in the macro economy. Agency theory is the subject of how shareholders can motivate management to accept the prescriptions of shareholder wealth. For example, liberal use of stock options should encourage management to think like shareholders. If, however, management deviates too far from shareholder objectives, the company’s board of directors is responsible for replacing them. In cases where the board is too weak or ingrown to take this action, the discipline of the equity markets could do it through a takeover. This discipline is made possible by the one-share-one-vote rule that exists in most Anglo-American markets. Copyright © 2007 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor Michael H. Moffett for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. Special thanks to Wesley Edens and Pilar García-Heras, MBA ‘06, for case-writing assistance.
Stakeholder Capitalism. In the non-Anglo-American markets, particularly continental Europe, controlling shareholders also strive to maximize long-term returns to equity. However, they are more constrained by powerful other stakeholders like creditors, labor unions, governments, and regional entities. In particular, labor unions are often much more powerful than in the Anglo-American markets. Governments often intervene more in the marketplace to protect important stakeholder interests in local communities, such as environmental protection and employment needs. Banks and other financial institutions often have cross-memberships on corporate boards, and as a result are frequently quite influential. This model has been labeled...