Transparent Corporate Objectives - a Win-Win for Investors and the Companies They Invest In” by Michael J. Mauboussin

In the article “Transparent Corporate Objectives–A Win-Win for Investors and the Companies They Invest In” by Michael J. Mauboussin and Alfred Rappaport, the authors begin by highlighting the excessive focus of corporate governance on the procedures has failed to support managers in developing clear objective. Company with vogue objectives can be confusing to managers, shareholders and stakeholders. “Maximising shareholder value” and “balancing the interests of shareholders” are often mentioned in the topic of organisation objective, however they are not clear and transparent, and always lead to the conflict of interest. The concept of “shareholder value” has been misunderstood widely, and most of the executives tend to satisfy with short-term value creation. In response, Mauboussin and Rappaport emphasis the important of extended time horizon investment and stress that maximisation of shareholder value should focus on strategies that maximise long term cash flow which ultimately drive up the share price. Besides, a success company highly relies on the long term relationship with the stakeholders. However, one should concern that stakeholders demand differently, and, Jensen (2002) indicates that it is impossible to simultaneously maximise the interests of all stakeholders. In order to work towards transparency and produce consistencies between words and actions, Mauboussin and Rappaport have introduced the three essential steps. First, develop a clear governing objective. Second, implement a set of policies to support the governing objective. Third, publicly disclose the governing objective and supporting policies. The last part of the article indicates investment mangers as the agents for change. The tension between investor managers who deliver long term returns for investors and investor managers who gathering assets and generating fees was mentioned.

This essay seeks to evaluate the corporate objectives of Marks and Spencer (M&S).  M&S’s objectives are too vague. M&S did not specific its governing priority but aiming to have it both ways by delivering sustainable value for shareholders while satisfying customer best interest. However, customer and shareholder value creation are contrast, the former often demands high quality product with lowest price, while the latter strikes for profitability maximisation, therefore it is unlikely to achieve both objectives simultaneously. Without prioritising one of the objectives, the business might at risk by developing false strategy. On top of this, the term “high quality” is rather hard to define without any further specification. Different expectations from customers may led to dissatisfaction which could be harmful to a business. Besides, the objectives of M&S without specifying a time horizon could be misleading, especially the term “sustainable value” on the objectives statement is so unclear.

Next, annual bonus scheme has been structured to encourage the behaviours that support M&S objectives. The financial and non-financial metrics such as customer engagement, sales growth and others have been included for performance measurement. Although these metrics could be a critical part for long term value creation, the bonus scheme which only focused on annual performance might encourage the short-termism practice, which in turn destroy the long term sustainability of M&S. Despite this, the fact that M&S has taken account of the cash flow growth within the bonus scheme has shown its effort of working towards shareholder value. The bonus scheme could have been better organised if multi-year metrics and bonuses were included. Besides, more attention should be paid on quality issue when constructing bonus scheme in order to achieve the objective of “enhance lives every day”.

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