When I did my MBA I undertook a couple of corporate finance classes. As someone who started out in marketing, these classes showed me a side of business that I hadn’t previously had much exposure to. I found these classes tough, but definitely worthwhile.
What did surprise me though was that a significant portion of this field of business seemed to be about extracting value from a business – sometimes at the expense of the businesses own future opportunities. Now I only did a few classes, so I’m no expert but I found it surprising how many ways there were to change the value of a corporation by tweaking and shifting the ownership structures, the mix of debt vs. equity and other factors that seemed to make sense, but have little relevance in what I regarded as the ‘real world’.
To me, the best way to increase the value of your business is to actually make that business better in delivering its products or services to customers.
If you create something that customers want, deliver it in a way they want, do it in a way that’s difficult for competitors to replicate and do it in a way that’s sustainable to you and the community in which you operate, then surely you will be successful. People will buy your stuff, whatever it might be.
Standing in the background and pulling levers, toggling balance sheets and shifting around ‘on paper’ stuff doesn’t seem to be the right way to do things – if you ask me. So I can change the value of the company by adjusting our mix of assets and debts, ok great. What does that do in the long term? Does it mean more people will buy our products? Does it make it tougher for competitors to imitate us? Does it inspire and motivate our people? I don’t think it does.
For all the efforts of those who espouse these practices, I wonder what the response is to the whole Global Financial Crisis thingy – it was finance experts that made that happen right?
What do you think? Is the best way to increase shareholder value by adjusting, tweaking and changing how the business works on paper? Or is it to deliver something that customers want? Because after all – if you deliver what customers want, you’ll do well and ultimately deliver shareholder value.
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