The concept that we were all taught in finance classes and business school was that the primary corporate objective should be to "Maximize shareholder value". While the concept has fallen from the cardinal rule to just one of many competing goals, it is still important. Like many aspects of our lives, there are many ways to achieve success and a rigorous adherence to a singular objective can have dire consequences.
Take leveraging a company. It can be a great tool to improve returns, but, at the same time, it can create disaster. Private equity is well known for taking the tenants of finance to extremes that often significantly benefit a small segment of people to the demise of everyone else. You have to go no further than Toys R Us to see its caustic results that can occur when a focus goes to extremes.. And, Toys R Us is just one of many.
Costco is a prime example of growth of sales and earnings that benefit all their stakeholders. Shareholders, customers and employees all benefit from keeping a balance of interests between many interests. Rather than seek to gain "riches" for a few by achieving huge gains by "yesterday", Costco has slowly and meticulously grown their business to benefit all. They firmly adhere to the childhood story of "Not cutting off the head of the golden goose."
A roundtable of business executives are now espousing a more balanced approach. Funny thing is that one of the best examples of such an approach is Costco and the CEO of Costco isn't even on the roundtable!
A quote from the attached article that struck me was the following:
"...anyone who wants to invest in a company that embodies the Roundtable’s new principles might consider Costco Wholesale (COST), the membership-only warehouse club. Its CEO wasn’t a Roundtable signatory, which is ironic since Costco has been criticized by Wall Street for paying workers too much and not doing enough to maximize earnings. The old complaints have subsided a bit as Costco’s stock gained some 35% this year, outperforming the S&P 500 index’s 17%."
I own Costco shares just because they benefit all their stakeholders. Hey, I can wait. No need to cut off the head of the golden goose. Patience is a virtue.
