Thank you for highlighting the issues around the complex subject of workplace environments (“Office Space,” December 2012). The impact of workstyles/workplaces on performance can definitely be measured: when a few key metrics are defined up front, the commitment to collecting data (qualitative and quantitative) is unwavering, and sophisticated analyses are conducted and reported. The outcomes are clear: employees who have the technology and support to make smart choices about how, when, and where they work (whether inside or outside the corporate workplace) show improvement in their solo work and their collaborative work.
Articles like “Are Swap Futures the Future?” (December 2012) understate the cost of collateral implications and accounting issues that clients will face, and that is something the regulatory authorities either don’t understand or do not care about in an effort to get bigger.
The article references financial accounting standards, but most large or midsize public companies simply will not enter hedges if they cannot accomplish hedge accounting in a straightforward manner. Swap futures will be difficult, if not impossible, to qualify — a huge negative.
The article also references costs for weaker credits. If these credits have to source cash to collateralize exposures, the cost will be huge. Their cost of capital is high, therefore coming up with collateral will be extremely expensive. In fact, their existing loan agreements may not even allow these companies to restrict cash in this fashion.
It is not in the best interest of regulatory agencies to shine a light on these issues.
Strong Words on Shareholder Value
Professor Lynn Stout’s ideas (“Whose Company Is It?” November 2012) are wrong, unsubstantiated, and extremely dangerous to our nation’s economic well-being. There are many reasons why maximizing shareholder value must be every company’s most important goal. The least important is that the shareholders are the owners. A better reason is that common shareholders are paid last, after all other stakeholders are satisfied. And unlike the other stakeholders, they have typically invested and put at risk 10 to 20 times future earnings when they buy the stock, so they must take a long-term view. Competition and reputation, and the free flow of information, force managers to cater to all other stakeholders to be sure something remains for the shareholders.
But even that is not the best reason. The best and only necessary reason is that the rule to maximize the net present value of the enterprise, which is the same as maximizing the per-share stock price, is the rule that leads scarce resources of all kinds to be allocated to their most promising uses and best users, and thereby to maximize the standard of living and the global growth rate.
Maximizing the wealth of the owners is simply an unintended byproduct of an economy that has animated the value of its resources to the fullest extent possible. That is nothing to be ashamed of, but devoutly to be desired. Any proposals that would weaken the primacy of the shareholder-value rule would impoverish us all in the end.
If Professor Stout makes a point, and it is not a new one, it is that many corporate managers mistakenly equate short-term profits — particularly the profits as reported by accounting rules — with shareholder value, when shareholder value is derived from the expected present value of cash flows to be generated over the life of the business and discounted for risk and illiquidity. But if managers mistake the true source of value, that is not a reason to discard the primacy of the shareholder-value rule. It is instead a call to find better ways to measure corporate performance and reward managers when they make the correct value-maximizing decisions rather than maximizing near-term book profits.
Chief Executive Officer
EVA Dimensions LLC
Locust Valley, New York
The Buzz on CFO.com
Nothing stirs up CFO readers like a debate on a controversial topic, such as the fiscal cliff, or health-care reform, or corporate social responsibility, or wellness programs.
Wellness programs? You heard right. The buzz on CFO.com grew to a mild roar in response to two articles presenting opposing views on whether the programs are worth the effort. The authors themselves provided some of the buzz, as they continued their point/counterpoint in the comments to the articles.
In “Nine Reasons Why Wellness Works,” consultant Larry Chapman took the pro position. “Worksite wellness programs do produce a positive ROI — if you design them well and implement them appropriately,” wrote Chapman. “I’m gratified to see this kind of article in a CFO magazine,” approved one reader. (It was an online story, but thanks.) “If health costs were managed by someone with financial expertise, we would be in a very different situation.”
But the article failed to gratify others. “Where are these 70 peer-reviewed studies proving the value of wellness programs?” demanded one skeptic. “My own experience with wellness programs is that they work well for people who are already engaged in the behaviors [these programs are] intended to promote.”
In the con article, “Do the Wellness Math Yourselves, CFOs,” author Al Lewis asserted that there are “many fallacies regarding the measurement and efficacy of wellness programs”; he offered six. (Six? Point for Chapman.) One fan gave Lewis a shout-out: “I am not a regular visitor to this site — I follow Al’s work because I find him to be a voice of logic, math, and humor (his book is very funny).” After reading Lewis, the fan said, “the more I am able to approach wellness and disease management with a critical, educated skepticism.” (Note to fan: you like logic, math, and humor? Read CFO.com!)
“This back-and-forth is very helpful as I am locked in debate with the idiots in HR (hence the anonymity) on whether these programs save money,” declared another reader. “It looked like the counterpoint ‘won’ this exchange.” (Can you say “foregone conclusion”?) “But just to be sure,” the reader added, “I downloaded Lewis’s book to my Kindle for a whopping $33. Someone should tell him that’s not what ebooks cost.” Consider him told.