Shareholder Value Quotes

There are only two ways to influence human behavior: you can manipulate it or you can inspire it. Very few people or companies can clearly articulate WHY they do WHAT they do. By WHY I mean your purpose, cause or belief - WHY does your company exist? WHY do you get out of bed every morning? And WHY should anyone care? People don’t buy WHAT you do, they buy WHY you do it. We are drawn to leaders and organizations that are good at communicating what they believe. Their ability to make us feel like we belong, to make us feel special, safe and not alone is part of what gives them the ability to inspire us. For values or guiding principles to be truly effective they have to be verbs. It’s not “integrity,” it’s “always do the right thing.” It’s not “innovation,” it’s “look at the problem from a different angle.” Articulating our values as verbs gives us a clear idea - we have a clear idea of how to act in any situation. Happy employees ensure happy customers. And happy customers ensure happy shareholders—in that order. Leading is not the same as being the leader. Being the leader means you hold the highest rank, either by earning it, good fortune or navigating internal politics. Leading, however, means that others willingly follow you—not because they have to, not because they are paid to, but because they want to. You don’t hire for skills, you hire for attitude. You can always teach skills. Great companies don’t hire skilled people and motivate them, they hire already motivated people and inspire them. People are either motivated or they are not. Unless you give motivated people something to believe in, something bigger than their job to work toward, they will motivate themselves to find a new job and you’ll be stuck with whoever’s left. Trust is maintained when values and beliefs are actively managed. If companies do not actively work to keep clarity, discipline and consistency in balance, then trust starts to break down. All organizations start with WHY, but only the great ones keep their WHY clear year after year.

Shaping the company's future requires a focus on value creation for all stakeholders, not just shareholders.

Ensuring the company's sustainable success requires a relentless focus on creating value for all stakeholders, not just shareholders.

On the Ideal Business - Buffett: “Something that costs a penny, sells for a dollar and is habit forming.

No one will be buried with the epitaph ‘He maximised shareholder value

These are the voices which we hear in solitude, but they grow faint and inaudible as we enter into the world. Society everywhere is in conspiracy against the manhood of every one of its members. Society is a joint stock company in which the members agree for the better securing of his bread to each shareholder, to surrender the liberty and culture of the eater. The virtue in most request is conformity. Self-reliance is its aversion. It [That is, conformity.] loves not realities and creators, but names and customs. "Whoso would be a man must be a nonconformist. He who would gather immortal palms must not be hindered by the name of goodness, but must explore if it be goodness. Nothing is at last sacred but the integrity of our own mind. Absolve you to yourself, and you shall have the suffrage of the world. I remember an answer which when quite young I was prompted to make to a valued adviser who was wont to importune me with the dear old doctrines of the church. On my saying, What have I to do with the sacredness of traditions, if I live wholly from within? my friend suggested--'But these impulses may be from below, not from above.' I replied, 'They do not seem to me to be such; but if I am the devil's child, I will live them from the devil.' No law can be sacred to me but that of my nature. Good and bad are but names very readily transferable to that or this; the only right is what is after my constitution, the only wrong what is against it. A man is to carry himself in the presence of all opposition as if everything were titular and ephemeral but he. I am ashamed to think how easily we capitulate to badges and names, to large societies and dead institutions. Every decent an well-spoken individual affects and sways me more than is right. I ought to go upright and vital, and speak the rude truth in all ways.

One of Buffett’s annual themes is the value of learning. He noted that life properly lived is learning, learning, learning all the time. He observed that being wrong is when he learns the most.

Permaculture Capital Stewardship, or Permaculture Investing, is about not just having a diversified portfolio, but having a portfolio where all of the assets within the portfolio have synergy and whereby that synergy is channeled toward maximized productivity for both shareholders and stakeholders. A permaculture investment portfolio has a multiplicative value effect.

At this moment in history the dominant force is clear: we live in an age of pathological short-termism. Politicians can barely see beyond the next election or the latest opinion poll or tweet. Businesses are slaves to the next quarterly report and the constant demand to ratchet up shareholder value.

Value is what a business is worth. Price is what you have to pay to get it.

The danger of relying on historical statistics or formulas is that you end up betting on a 14-year-old horse with a great record but is now ready for the glue factory.

Buffett gave two criteria for evaluating the performance of management: 1) How well do they run the business? and 2) How well do they treat the owners?

Stop Destroying Shareholder Value

We are in the midst of the evolution of capitalism from a century focused on maximizing short-term shareholder value to one focused on maximizing long-term shared value. According

When a CEO discusses “unlocking shareholder value,” there is a tune playing in her head that the employees can’t hear.

Jeff Bezos, founder and CEO of Amazon, made this exact argument in his 2015 letter to shareholders,33 where he introduced the idea of Level 1 and Level 2 decisions. He describes a Level 1 decision as one that is hard to reverse, whereas a Level 2 decision is one that is easy to reverse. Bezos argues that we should be slow and cautious when making Level 1 decisions, but that we should move fast and not wait for perfect data when making Level 2 decisions.

students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards—so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value. Though it’s seldom recognized, this is the exact approach

Buffett also noted that book value is seldom meaningful in analyzing the value of a business. Book value simply records what was put into the business. The key to calculating value is determining what will come out of the business.

A focus on steady, long-term growth may be unheard of now in most public companies, but it was standard operating procedure for corporations in the 1950s and ’60s, until we wilted in the face of foreign competition and the global economy and became obsessed with shareholder value.

A year earlier, no company had been accorded more faith than Enron; by late November, none was trusted less. And so, a gasping gurgle, a desperate SOS: Enron, the emblem of free markets, the champion of deregulation, reached into its depleted treasury and forked over $100,000 to each of the major political parties' campaign war chests. Then, it shuttered its online trading unit - its erstwhile gem. On November 28, Standard & Poor's downgraded Enron to junk-bond level - which triggered provisions in Enron's debt requiring it to immediately repay billions of its obligations. This it could not do. Its stock was seventy cents and falling, and, now, no gatekeepers and no credit remained. Accordingly, in the first week of December, Enron, the archetype of shareholder value, availed itself of the time-honored protection for those who have lost their credit: bankruptcy.

We discussed the Curse of Knowledge in the introduction—the difficulty of remembering what it was like not to know something. Accuracy to the point of uselessness is a symptom of the Curse of Knowledge. To a CEO, “maximizing shareholder value” may be an immensely useful rule of behavior. To a flight attendant, it’s not. To a physicist, probability clouds are fascinating phenomena. To a child, they are incomprehensible. People are tempted to tell you everything, with perfect accuracy, right up front, when they should be giving you just enough info to be useful, then a little more, then a little more.

We have an unshakeable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.”2 In other words, while it’s true that shareholder value stems from growth in profit, Amazon believes that long-term growth is best produced by putting the customer first.

The key to calculating value is determining what will come out of the business.

Always remember, the minority dictates the price. A company may have billions of shareholders, but it only takes one shareholder to change the price.

I hope I live to see a day when a yellow rose[183] is extended between the warring factions of shareholder and employee value.

Buffett emphasized that the ability to generate cash and reinvest is critical. He noted that it is the ability to generate cash that gives Berkshire its value.

Buffett chimed in that most buybacks are done at any price, which makes no sense. Very rarely do you see metrics to govern the prices paid. Buybacks above intrinsic value destroy value.

Through all the machismo, through all the greed, through all the discussion of shareholder values, it all came down to this: John Gutfreund and Tom Strauss were prepared to scrap the largest takeover of all time because their firm’s name would go on the right side, not the left side, of a tombstone advertisement buried among the stock tables at the back of The Wall Street Journal and The New York Times.

Jobs had been famously stingy when it came to charities, arguing that the most charitable thing he could do was increase Apple’s value so that shareholders had more money to give away to the causes of their choice

A more recent concern relates to “financialization” and associated short-termism. Financialization is the growing importance of norms, metrics, and incentives from the financial sector to the wider economy. Some of the concerns expressed are that, for example, managers are increasingly awarded stock options to align their incentives with those of shareholders; companies are often explicitly managed to increase short-term shareholder value; and financial engineering, such as share buybacks and earnings management, has become a more important part of senior managers’ jobs. The end result is that rather than finance serving business, business serves finance: the tail wags the dog. What John Kay described as “obliquity,” the idea that making money was a consequence of, or a second-order benefit of, serving one’s customers and building good businesses, is driven out (Kay 2010).

Our advantage, rather, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.

We will not reimagine capitalism unless we rediscover the values on which capitalism has always been based, and have the courage and the skill to integrate them into the day-to-day fabric of business. To pretend that this is not the case is to critically misrepresent the truth of our current situation. We are destroying the world and the social fabric in the service of a quick buck, and we need to move beyond the simple maximization of shareholder value before we bring the whole system crashing down around our heads.

It’s not easy to feel good about yourself when you are constantly being told you’re rubbish and/or part of the problem. That’s often the situation for people working in the public sector, whether these be nurses, civil servants or teachers. The static metrics used to measure the contribution of the public sector, and the influence of Public Choice theory on making governments more ‘efficient’, has convinced many civil-sector workers they are second-best. It’s enough to depress any bureaucrat and induce him or her to get up, leave and join the private sector, where there is often more money to be made. So public actors are forced to emulate private ones, with their almost exclusive interest in projects with fast paybacks. After all, price determines value. You, the civil servant, won’t dare to propose that your agency could take charge, bring a helpful long-term perspective to a problem, consider all sides of an issue (not just profitability), spend the necessary funds (borrow if required) and – whisper it softly – add public value. You leave the big ideas to the private sector which you are told to simply ‘facilitate’ and enable. And when Apple or whichever private company makes billions of dollars for shareholders and many millions for top executives, you probably won’t think that these gains actually come largely from leveraging the work done by others – whether these be government agencies, not-for-profit institutions, or achievements fought for by civil society organizations including trade unions that have been critical for fighting for workers’ training programmes.

A central tenet of the traditional command-and-control mentality is management by the numbers; this is the basis and means for decision making. The numbers are largely financial and activity-related (what people do), which may or may not be of value to understanding and improving the system. With a proclaimed interest in ‘shareholder value,’ senior managers sit astride a system that they make more unstable and suboptimal through financial interference. Almost without thinking about it, the purpose of the organization becomes ‘make the budget.’ As

One reason that it’s difficult to understand is that twentieth-century managers had learned to parrot phrases like “The customer is number one!” while continuing to run the organization as an internally focused, top-down bureaucracy interested in delivering value to shareholders.

Though I can’t be sure, I suspect that at some point about thirty years ago a cleverly sadistic and antibusiness consultant decided that the best way to really screw up companies was to convince them that what they needed was a convoluted, jargony, and all-encompassing declaration of intent. The more times those declarations used phrases like “world class,” “shareholder value,” and “adding value,” the better. And if companies would actually print those declarations and hang them in their lobbies and break rooms for public viewing, well, that would be a real coup.

Impact is a critically important concept when it comes to social innovation, generally used in the context of measuring whether social interventions do or don’t work. But conceptually, it’s very similar to the problem of measuring success in a business before you have profits. That’s why lean methods are so perfectly suited to this kind of work. The only real difference is that instead of talking about maximizing shareholder value, Lean Impact talks about maximizing social impact. An advance party of pioneers, some of whom you’ll read about here, is already doing this, but we need more. This book is a way to help add to their numbers. Lean Impact is not only transformational for the social sector, though. My hope is that people in other kinds of businesses and organizations will also pick it up and, after reading about the dedicated people and clear strategies whose stories Ann Mei has gathered, think about how the products and institutions they build affect the world. All of us have more to learn about how we make impact so we can move together into this new era. —Eric Ries, author of The Lean Startup and The Startup Way

As a value investor, your ideal situation is to find a company increasing its intrinsic value. Ideally, the company would be one with a declining stock price, thus creating an even better bargain as time unfolds. No one has employed these principles more effectively than Buffett and Munger.

In reality, electrons move in “probability clouds.” So what do you tell a sixth grader? Do you talk about the motion of planets, which is easy to understand and nudges you closer to the truth? Or do you talk about “probability clouds,” which are impossible to understand but accurate? The choice may seem to be a difficult one: (1) accuracy first, at the expense of accessibility; or (2) accessibility first, at the expense of accuracy. But in many circumstances this is a false choice for one compelling reason: If a message can’t be used to make predictions or decisions, it is without value, no matter how accurate or comprehensive it is. Herb Kelleher could tell a flight attendant that her goal is to “maximize shareholder value.” In some sense, this statement is more accurate and complete than that the goal is to be “THE low-fare airline.” After all, the proverb “THE low-fare airline” is clearly incomplete—Southwest could offer lower fares by eliminating aircraft maintenance, or by asking passengers to share napkins. Clearly, there are additional values (customer comfort, safety ratings) that refine Southwest’s core value of economy. The problem with “maximize shareholder value,” despite its accuracy, is that it doesn’t help the flight attendant decide whether to serve chicken salad. An accurate but useless idea is still useless.

In 1980, the compensation of the average chief executive officer was forty-two times that of the average worker; by the year 2004, the ratio had soared to 280 times that of the average worker (down from an astonishing 531 times at the peak in 2000). Over the past quarter-century, CEO compensation measured in current dollars rose nearly sixteen times over , while the compensation of the average worker slightly more than doubled. Measured in real(1980) dollars, however, the compensation of the average worker rose just 0.3 percent per year, barely enough to maintain his or her standard of living. Yet CEO compensation rose at a rate of 8.5 percent annually, increasing by more than seven times in real terms during the period. The rationale was that these executives had "created wealth" for their shareholders. But were CEOs actually creating value commensurate with this huge increase in compenstion? Certainly the average CEO was not. In real terms, aggregate corporate profits grew at an annual rate of just 2.9 percent, compared to 3.1 percent for our nation's economy, as represented by the Gross Domestic Product. How that somewhat dispiriting lag can drive average CEO compensation to a cool 9.8 million in 2004 is one of the great anomalies of the age.

Corporations go to great lengths to employ geniuses: technologists, designers, financial engineers, economists, artists even. I’ve seen it happen,’ he said. ‘But what have they done with them? They channel all that talent and creativity towards humanity’s destruction. Even when it is creative, Eva, capitalism is extractive. In search of shareholder profit, corporations have put these geniuses in charge of extracting the last morsel of value from humans and from the earth, from the minerals in its guts to the life in its oceans. And these brilliant minds have been used to cajole governments into accepting their raids on the planet’s resources by creating markets for them: markets for carbon dioxide and other pollutants – phoney markets controlled by their employers! Unlike the East India Company, the Technostructure does not need its own armies. It owns our states and their armies, because it controls what we think. The dirtier the industry, the richer and more despised, the more its captains have been able to tap into the rivers of debt-derived money to purchase influence and to blunt opposition. Previously they would buy newspapers and set up TV stations; now they employ armies of lobbyists, found think tanks, litter the Internet with their trolls and, of course, direct monumental campaign donations to the chief enablers of our species’ extinction, the politicians.

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital. Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand. We have invested and will continue to invest aggressively to expand and leverage our customer base, brand, and infrastructure as we move to establish an enduring franchise.

Shareholders have a residual claim on a firm’s assets and earnings, meaning they get what’s left after all other claimants—employees and their pension funds, suppliers, tax-collecting governments, debt holders, and preferred shareholders (if any exist)—are paid. The value of their shares, therefore, is the discounted value of all future cash flows minus those payments. Since the future is unknowable, potential shareholders must estimate what that cash flow will be; their collective expectations about the future determine the stock price. Any shareholders who expect that the discounted value of future equity earnings of the company will be less than the current price will sell their stock. Any potential shareholders who expect that the discounted future value will exceed the current price will buy stock. This means that shareholder value has almost nothing to do with the present. Indeed, present earnings tend to be a small fraction of the value of common shares. Over the past decade, the average yearly price-earnings multiple for the S&P 500 has been 22x, meaning that current earnings represent less than 5 percent of stock prices.

We all know that 97% of the money in the world doesn't exist and that's thanks to Fractional Reserve Banking, or should I say fictional reserve banking." He grinned at his own joke, his smile partly hidden by his hair, "Money is no longer attached to the Gold Standard, therefore, it isn't based on anything. So when it says, 'I promise to pay the bearer on demand ten pounds,' I have to ask, ten pounds of what?" Silence. "The world is owned by the rich shareholder, the rich superstar, the rich industrialist, the rich aristocracy." He was now marching around the stage, "It doesn't matter who or what they are, if they're rich then they own a part of the world, but they only own it because they've got lots of money. Which means they own part of the 97% of the world’s fictional money, the pretend money that only exists on a computer." He stopped abruptly and stared out at the audience, "Which means that if they cashed in their fictional nonexistent money they'd get something like this ten pound note offering to pay the bearer the sum of ten pounds of nothing." He held the note aloft, "Which means the rich have managed to buy the entire world with paper nothing that has a value of nothing and we've let them do it.

The ‘Regal Seven (key) Ingredients of a Successful Company’ is: Pursue the goal of Profit Maximization keeping in mind the shareholders interests. To be achieved by developing and rendering Quality Goods and Services at a Reasonable Price. By inculcating Value and Ethics within the structure Through Sound People Management principles devised and effectively implemented. Further organizing Learning Programs and instill concept of ‘Learning and Earning’ Develop/Construct Customer Satisfaction. Build-Build-Build ; Build vision based values, Build your staff, Build customer satisfaction ; and witness your organization being built in the market.

During 1983 our book value increased from $737.43 per share to $975.83 per share, or by 32%. We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a five-year test as a rough yardstick of economic performance. Red lights should start flashing if the five-year average annual gain falls much below the return on equity earned over the period by American industry in aggregate. (Watch out for our explanation if that occurs as Goethe observed, “When ideas fail, words come in very handy.")

Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value—and even thought, itself—were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest—whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?)

Basically, Graham breaks the art of investing down into two simple variables – price and value. Value is what a business is worth. Price is what you have to pay to get it. Given the stock market’s manic-depressive behavior, numerous occasions arise where a business’ market price is distinctly out of line with its true business value. In such instances, an investor may be able to purchase a dollar of value for just 50 cents. Note that there is no mention here of interest rates, economic forecasts, technical charts, market cycles, etc. The only issues are price and value. I should also note that Graham emphasizes a large margin of safety. The strategy is not to buy a dollar of value for 97 cents. Rather, the gap should be dramatic so as to absorb the effects of miscalculation and worse-than-average luck.

How can HOW help us repair our faltering global economy? Only by getting our "hows" right can we ensure that we are sustainable. This can only be achieved when we are rooted in, and inspired by, sustainable values. The global economic meltdown supplied a perfect, but painful, example of how sustainability cannot be guided by situational values. The economic crash occurred because too many financial companies became disconnected from fundamental values and long-term sustainable thinking. Instead of nurturing sustainable collaborations, banks, lenders, borrowers and shareholders pursued short-term relationships founded on situational values. More than ever we need to get out of this cycle of crises and build long-term success and deep human connections so that we achieve enduring significance in today's globally interconnected world.

the Big Three own, which include America’s major airlines (American, Delta, United Continental), much of Wall Street (JPMorgan Chase, Wells Fargo, Bank of America, Citigroup) and car makers such as Ford and General Motors. Together, the Big Three are the largest single shareholder in almost 90 per cent of firms listed in the New York Stock Exchange, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola. As for the dollar value of the Big Three’s shares, it has too many zeros to mean much. At the time of writing, BlackRock manages nearly $10 trillion in investments, Vanguard $8 trillion and State Street $4 trillion. To make sense of these numbers: they are almost exactly the same as the US national income; or the sum of the national incomes of China and Japan; or the sum of the total income of the eurozone, the UK, Australia, Canada and Switzerland.

But scamming large amounts of money off the top seems even harder to catch. Fraud by American defense contractors is estimated at around $100 billion per year, and they are relatively well behaved compared to the financial industry. The FBI reports that since the economic recession of 2008, securities and commodities fraud in the United States has gone up by more than 50 percent. In the decade prior, almost 90 percent of corporate fraud cases—insider trading, kickbacks and bribes, false accounting—implicated the company’s chief executive officer and/or chief financial officer. The recession, which was triggered by illegal and unwise banking practices, cost American shareholders several trillion dollars in stock value losses and is thought to have set the American economy back by a decade and a half. Total costs for the recession have been estimated to be as high as $14 trillion—or about $45,000 per citizen.

This vision is very much in line with the views of the economist John Kay in his book Other People’s Money (2015). As he says, stock markets, when first started, were the vehicles for raising finance often for large infrastructure projects (typically railways) from many dispersed shareholders. But markets no longer provide this function. Almost no new projects are financed via the stock market. (Indeed, the observation that few early-state companies come to the stock market for financing rather confirms the hypothesis that stock markets have significant problems dealing with them.) Rather, stock market trading is dominated by large asset managers trading with each other. In Kay’s view, they are searching for returns over and above those available to the market as a whole (searching for “alpha”) by trying to anticipate what others are thinking about the value of assets rather than the value of the underlying assets themselves.

Banks were once an extremely valuable part of the economy and did a lot of good in advancing civilization. Banks played a pivotal role in financing big projects like roads, bridges, factories, stadiums, etc. Banks were to the economy what the heart is to the human body. But that has ended. Traditional banks have become extra toxic entities in the economy. It’s partially the fault of excessive government regulations that have made everything dysfunctional and it’s partially the fault of greedy bankers putting profits above customers and shareholders above society... But nonetheless, banks today offer very little benefit to their clients. They pay barely anything in interest. They offer barely anything in growth. They move money too slowly. They’re too restrictive. They’re selling the same boring products and services they did a hundred years ago. And they have too much power over peoples accounts. Soon, the many new companies and applications that emerge on the Ethereum infrastructure will eliminate the need for traditional banks and eliminate their value proposition by providing people with superior value. Everything from growth to asset management to lending can be done even better on the Ethereum infrastructure by anyone.

Between 2003 and 2008, Iceland’s three main banks, Glitnir, Kaupthing and Landsbanki, borrowed over $140 billion, a figure equal to ten times the country’s GDP, dwarfing its central bank’s $2.5 billion reserves. A handful of entrepreneurs, egged on by their then government, embarked on an unprecedented international spending binge, buying everything from Danish department stores to West Ham Football Club, while a sizeable proportion of the rest of the adult population enthusiastically embraced the kind of cockamamie financial strategies usually only mooted in Nigerian spam emails – taking out loans in Japanese Yen, for example, or mortgaging their houses in Swiss francs. One minute the Icelanders were up to their waists in fish guts, the next they they were weighing up the options lists on their new Porsche Cayennes. The tales of un-Nordic excess are legion: Elton John was flown in to sing one song at a birthday party; private jets were booked like they were taxis; people thought nothing of spending £5,000 on bottles of single malt whisky, or £100,000 on hunting weekends in the English countryside. The chief executive of the London arm of Kaupthing hired the Natural History Museum for a party, with Tom Jones providing the entertainment, and, by all accounts, Reykjavik’s actual snow was augmented by a blizzard of the Colombian variety. The collapse of Lehman Brothers in late 2008 exposed Iceland’s debts which, at one point, were said to be around 850 per cent of GDP (compared with the US’s 350 per cent), and set off a chain reaction which resulted in the krona plummeting to almost half its value. By this stage Iceland’s banks were lending money to their own shareholders so that they could buy shares in . . . those very same Icelandic banks. I am no Paul Krugman, but even I can see that this was hardly a sustainable business model. The government didn’t have the money to cover its banks’ debts. It was forced to withdraw the krona from currency markets and accept loans totalling £4 billion from the IMF, and from other countries. Even the little Faroe Islands forked out £33 million, which must have been especially humiliating for the Icelanders. Interest rates peaked at 18 per cent. The stock market dropped 77 per cent; inflation hit 20 per cent; and the krona dropped 80 per cent. Depending who you listen to, the country’s total debt ended up somewhere between £13 billion and £63 billion, or, to put it another way, anything from £38,000 to £210,000 for each and every Icelander.

For one, focus on intrinsic value growth, not reported earnings. Again, it’s not what the numbers are but what they mean that matters.

Buffett said he pays no attention to economic outlooks. His decisions are based simply on intrinsic business values.

Value investing is looking for a “mispriced gamble.

Builders are people who are curious, explorers. They like to invent. Even when they’re experts, they are ‘fresh’ with a beginner’s mind. They see the way we do things as just the way we do things now. A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.”(Our emphasis).

At the heart of this inequity lies a simple design question: who owns the enterprise and, so, captures the value that workers generate? When the founding fathers of economics disagreed over how income would be distributed between labour, landlords and capitalists, they could all agree on one thing: that these were obviously three distinct groups of people. In the midst of the industrial revolution—when industrialists issued shares to wealthy investors while hiring penniless workers at the factory gate—that was a fair assumption. But what determined each group’s respective share of earnings? Economic theory says it is their relative productivity, but in practice, it has largely turned out to be their relative power. The rise of shareholder capitalism entrenched the culture of shareholder primacy, with the belief that a company’s primary obligation is to maximise returns for those who own its shares.

In an illuminating comment on the financialisation of business, Jack Welch — now long retired from General Electric — would in 2009 proclaim shareholder value 'the dumbest idea in the world.

It is our belief that shareholders should demand of their managements either a normal payout of earnings—on the order, say, of two-thirds—or else a clear-cut demonstration that the reinvested profits have produced a satisfactory increase in per-share earnings. Such a demonstration could ordinarily be made in the case of a recognized growth company. But in many other cases a low payout is clearly the cause of an average market price that is below fair value, and here the shareholders have every right to inquire and probably to complain.

The church doesn’t need to be run like a business,’ a mentor once told me, ‘but it surely shouldn’t be run like a bad business.’”15 Nevertheless, caution is in order. Bottom line concerns about profits, shareholder interests, and value-added priorities do not necessarily add up in God’s economy.

We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash. We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.”21

We are taught that the sole purpose of business is to maximize shareholder value. I dispute this premise. Yes, businesses need to be profitable to survive. Without profitability, the business dies. Profitable businesses help communities and the economy. But conscious businesses with conscious cultures include focusing on sustainability, not profitability alone. Conscious and sustainable organizations are those companies that include making a difference for the community at large and being purpose-driven as primary values. This can only be driven by REAL leaders. Robertson, Susan. Real Leadership: Waken To Wisdom. The Books Factory. Kindle Edition.

The Business Roundtable is a powerful and conservative representative of big business that since 1997 has reinforced the idea that ‘corporations exist principally to serve shareholders’ – in other words, that business exists to make money. The 2019 statement upended that principle, suggesting that businesses have responsibilities not just to shareholders but to customers, employees, suppliers and communities. ‘Each of our stakeholders is essential,’ the statement read. ‘We commit to deliver value to all of them, for the future success of our companies, our communities and our country.

A few weeks later, the United States Steel Corporation was formed. It was a testament to the power of Morgan, and the entirely unregulated securities market, that he could go from a handshake to a public company in less than eight weeks. As the syndicate manager, Morgan’s firm deposited $25 million to execute the mechanics of the transaction. Morgan’s role was to organize the consolidation, sell shares to the public, and serve on its board of directors. Morgan himself was not a major shareholder of any of the consolidations he sponsored or underwrote. His compensation generally came in the form of fees for arranging these massive transactions. U.S. Steel combined every major steel consolidation of the previous three years, along with Carnegie Steel, into a superconsolidation. On March 29, when the shares were brought to market, U.S. Steel became the first company to be valued at over $1 billion.

Have you ever read management interviews that claim they aren’t innovative, don’t have the best business leaders, aren’t “leveraging” technology, aren’t customer focused, don’t treat their employees well, don’t listen to shareholders, make bad capital allocations, and ignore the value of making “sustainable” investments? I haven’t.

As Dr. Stout explains in her book, The Shareholder Value Myth, “If 80 percent of the CEO’s pay is based on what the share price is going to do next year, he or she is going to do their best to make sure that share price goes up, even if the consequences might be harmful to employees, to customers, to society, to the environment or even to the corporation itself in the long-term.

But scamming large amounts of money off the top seems even harder to catch. Fraud by American defense contractors is estimated at around $100 billion per year, and they are relatively well behaved compared to the financial industry. The FBI reports that since the economic recession of 2008, securities and commodities fraud in the United States has gone up by more than 50 percent. In the decade prior, almost 90 percent of corporate fraud cases—insider trading, kickbacks and bribes, false accounting—implicated the company’s chief executive officer and/or chief financial officer. The recession, which was triggered by illegal and unwise banking practices, cost American shareholders several trillion dollars in stock value losses and is thought to have set the American economy back by a decade and a half. Total costs for the recession have been estimated to be as high as $14 trillion—or about $45,000 per citizen. Most tribal and subsistence-level societies would inflict severe punishments on anyone who caused that kind of damage.

In the absence of social goods, ‘profit-first’ economic growth has fed a crony capitalism that serves not the common good but speculators in the ‘liquid economy.’ Collateral banking systems, offshore sites providing fiscal havens for corporate tax avoidance, extracting value from companies to boost the earnings of shareholders at the expense of stakeholders, the smoke-and-mirrors world of derivatives and credit default swaps-all these suck capital from the real economy and undermine a healthy market, creating historically unprecedented levels of inequality. There is a major disjuncture between the awareness of social rights on the one hand and the distribution of actual opportunities on the other. The stupendous rise in inequality of recent decades is not a stage of growth but a brake on it, and the root of many social ills in the twenty-first century. Barely more than one percent of the world’s population owns half of its wealth. A market detached from morality, dazzled by its own complex engineering, which privileges profit and competition above all else, means not just spectacular wealth for a few but also poverty and deprivation for many. Millions are robbed of hope.

In my work I’ve noticed that senior executives of companies are among the worst at accepting the reality of trade-offs. I recently spent some time with the CEO of a company in Silicon Valley valued at $40 billion. He shared with me the value statement of his organization, which he had just crafted, and which he planned to announce to the whole company. But when he shared it I cringed: “We value passion, innovation, execution, and leadership.” One of several problems with the list is, Who doesn’t value these things? Another problem is that this tells employees nothing about what the company values most. It says nothing about what choices employees should be making when these values are at odds. This is similarly true when companies claim that their mission is to serve all stakeholders—clients, employees, shareholders—equally. To say they value equally everyone they interact with leaves management with no clear guidance on what to do when faced with trade-offs between the people they serve.

The quality of organizational leadership, culture, and strategy determine competitive advantage and customer loyalty. This is the source of shareholder value.

Despite the overriding importance of inflation in the investment equation, we will not punish you further with another full recital of our views; inflation itself will be punishment enough. (Copies of previous discussions are available for masochists.) But, because of the unrelenting destruction of currency values, our corporate efforts will continue to do a much better job of filling your wallet than of filling your stomach.

When individuals form a business, they generally take a risk saying, “I’ll combine your efforts with the efforts of others and create something of greater value than you can do individually. If I’m wrong, I’ll still owe you for your effort. If I’m right, we create disproportionate value and I’ll keep a return for doing that.” Any shareholder who puts something of value into the business (money, know-how, sweat equity) expects to get a return of value for putting that in. However, a key is that return is at risk because until they create value for others as defined by others, they have no value to extract or return.

Dr. Stout explains in her book, The Shareholder Value Myth, “If 80 percent of the CEO’s pay is based on what the share price is going to do next year, he or she is going to do their best to make sure that share price goes up, even if the consequences might be harmful to employees, to customers, to society, to the environment or even to the corporation itself in the long-term.

We are promoting building a better business, increasing shareholder value, enhancing the business’s competitive position through securing a lower cost base, and ensuring we have a capable supplier portfolio. Further, through a skilled procurement team, we can strengthen the business through excellence in contract management discipline, supply chain assurance and align our supply base with the company’s strategic goals, be they technologically based or meet sustainability objectives. What’s not to get excited about that? The CEO’s door will always be open to hear these types of discussions.

We have an unshakeable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.”2 In other words, while it’s true that shareholder value stems from growth in profit, Amazon believes that long-term growth is best produced by putting the customer first. If you held this conviction, what kind of company would you build? In a talk at the 2018 Air, Space and Cyber Conference, Jeff described Amazon this way: “Our culture is four things: customer obsession instead of competitor obsession; willingness to think long term, with a longer investment horizon than most of our peers; eagerness to invent, which of course goes hand in hand with failure; and then, finally, taking professional pride in operational excellence.” That

NEVER give up a board seat in a seed round. And, to the degree possible, try to do your rounds without a Preferred Board Seat. Observer seats give them a seat at the table without the control. Common seats give them a seat at the table, but while holding them accountable to push the company forward since the common shareholders, with you as a founder holding most of the common vote, can let them go. You can emphasize to this investor that your intention is to have them on the Board forever. If they add value to the business, you’ll naturally want to keep them around for as long as that is the case.

If we shift our focus from relentless productivity, we may collectively rethink our societal metrics for success. A society obsessed with shareholder value, GDP, and corporate wealth creation will value and reward those who drive those metrics upward: bankers, venture capitalists, day traders. A society obsessed with quality of life, care, and societal health values and rewards a very different set of people. Before and during the pandemic, our most “essential” workers struggled to receive equitable pay and adequate protections, precisely because their work wasn’t valued. But what if it was? And what if one of the key steps to getting there was for nonessential workers (like us!) to change the way we see ourselves?

In the nineteenth century the global economy was worth a little more than $1 trillion, in today’s money. That means each year capital needed to find new investments worth about $30 billion – a significant sum. This required a huge effort on the part of capital, including the colonial expansion that characterised the nineteenth century. Today the global economy is worth over $80 trillion, so to maintain an acceptable rate of growth capital needs to find outlets for new investments worth another $2.5 trillion next year. That’s the size of the entire British economy – one of the biggest in the world. Somehow we have to add the equivalent of another British economy next year, on top of what we are already doing, and then add even more than that the following year, and so on. Where can this quantity of growth possibly be found? The pressures become enormous. It’s what is driving the pharmaceutical companies behind the opioid crisis in the United States; the beef companies that are burning down the Amazon; the arms companies that lobby against gun control; the oil companies that bankroll climate denialism; and the retail firms that are invading our lives with ever-more sophisticated advertising techniques to get us to buy things we don’t actually want. These are not ‘bad apples’ – they are obeying the iron law of capital. Over the past 500 years, an entire infrastructure has been created to facilitate the expansion of capital: limited liability, corporate personhood, stock markets, shareholder value rules, fractional reserve banking, credit ratings – we live in a world that’s increasingly organised around the imperatives of accumulation.

over half of U.S. households are vested in the stock market (though it should be said that the richest 10 percent of families own over 80 percent of the total value of all stocks). We are the shareholders, we lucky 53 percent who have a pension, a 401(k), a 403(b), or any other kind of investment—or we who have parents using 529 plans to fund our education or are enrolled in universities whose endowments pay for residential dormitories and study abroad trips. Don’t we benefit when we see our savings go up and up, even when those returns require a kind of human sacrifice?

Knowing What Your Job Is We are trained to believe our “job” is the set of tasks we accomplish for an employer in return for money. That’s how I saw it until a CEO shared with me his approach to business. He viewed his career as a non-stop search for a better job and because of that changed jobs and companies often. Apparently it worked because he was the head of a company when I met him. Usual Frame: Your job is what your boss tells you it is. Reframe: Your job is to get a better job. Don’t confuse your job with the work your employer wants you to do. The boss might want you to process all the pending orders by quitting time, but your job is to get a better job. Everything else you do should service that reframe. If it doesn’t help you leave the job you are in and upgrade, it might not be worth doing. But don’t worry that this line of thinking feels sociopathic—doing a good job on your assigned duties is one way to look good for promotions.  The reframe reminds us to be in continuous job-search mode, including on the first day of work at a new job. If that sounds unethical, consider that your employer would drop you in a second if the business required it. In a free market, you can do almost anything that is normal and legal. Changing jobs—for any reason you want—is normal. Your employer’s job is to take care of the shareholders. It’s your job to take care of you. That doesn’t always mean acting selfishly. If being generous with your time and energy seems as if it will have the better long-term payoff, do that. Your employer might want to frame employees as “a family,” which is common, but that’s to divert you from the fact that they can fire you at will. They don’t want you to know you have the same power to fire them. Part of the job of leadership is convincing you that what is good for the leader is good for you. Sometimes that is the case but keep your priorities clear. You are number one. When I recommend being selfish in the job market, I expect you to know that approach works best when dealing with a big corporation. A small business might require a more generous approach. When your workplace reframe is that your job is to get a better job, that helps you make decisions that work in your favor. For example, if you’re offered a choice of two different projects at work, pick the one that teaches you a valuable skill, lets you show off what you can do, or lets you network with people who can help you later. Don’t make the mistake of picking the project that has the most value to the company if doing so has the least value to you. Sometimes your best career move is to do exactly what your boss asks, especially if it’s critical to the company. You’ll know those situations when you see them. Don’t lose sight of your mission: Get a better job. Boredom

As companies get larger, with a broader following of investors, it becomes awfully tempting to get into that jet and go up to Detroit or Chicago or New York and speak to the bankers and the people who own your stock. But since we got our stock jump-started in the beginning, I feel like our time is better spent with our own people in the stores, rather than off selling the company to outsiders. I don’t think any amount of public relations experts or speeches in New York or Boston means a darn thing to the value of the stock over the long haul. I think you get what you’re worth. Not that we don’t go out of our way to keep Wall Street up to date on what’s going on with the company. For the last few years, in fact, a group called the United Shareholders Association has voted us the number-one company in the U.S. based on our responsiveness to shareholders. What

It costs about two thousand dollars just to hire someone, so our preference always is to use our internal employees. It is more cost-effective and will generate more employee engagement and productivity, which means employees will go the extra mile so customers will be served better and shareholder value will increase. The companies with the most highly engaged workforces earn three times those with less. But

Buffett said he pays no attention to economic outlooks. His decisions are based simply on intrinsic business values. Interestingly,

Buffett also reaffirmed that they like John Gutfreund, Chairman of Salomon Brothers, very much. Munger (whose favorite expression seemed to be, “It’s one tough business.”) made one of his only enthusiastic comments of the day: “Salomon is deep in talent—the ultimate meritocracy—and with that talent may do very well over time.” It appears to me that Salomon Brothers, which is selling below book value, may be an excellent long-term core holding. On

It was never mentioned at the time, but the widespread pursuit of shareholder value initiatives put marketing in the back seat among other strategic priorities. There were easier ways of growing the top- and bottom-lines than by gambling on marketing. Marketing was uncertain and difficult in the recession-prone, post-Golden-Age decades.

Agencies missed the significance of “shareholder value” and the change in priorities that it represented to their clients. They assumed, perhaps, that creativity and big ideas were eternal verities – that they were what clients needed under any circumstances. Shareholder value was just another management trend, buzzword of the month – nothing to worry about. The

Shareholder value became, from the 1990s onwards, a driver of management consulting success and, somewhat sadly, of advertising agency marginalization.

There was a new trend for agencies to hire and parade before their clients “strategic planners,” an ideal originally imported from the UK; but these were not strategists in the same way that management consultants were strategists. Instead, agency strategic planners were experts in customer segmentation and behavior, excellent at designing market research and reading the results of market research reports. The planners were called, in some quarters, “the conscience of the consumer” – they upheld long-term brand values on behalf of consumers and helped to resist any attempts by the creative department to go “off brand” in the pursuit of cute ideas that would dilute “brand values.” In short, the strategic planners were consumer experts, brand developers and brand policemen. They were an important innovation, but they hardly signaled new strategic directions for ad agencies, and their efforts did not have the slightest impact on their clients’ concerns about achieving improved shareholder value. Ironically,

In a 2016 book widely publicized in the US, Stern claimed that 58 per cent of all jobs would be automated eventually, driven by the ethos of shareholder value. He told the American media group Bloomberg, ‘It’s not like the fall of the auto and steel industries. That hit just a sector of the country. This will be widespread. People will realize that we don’t have a storm anymore; we have a tsunami.’16 Nevertheless, there are reasons to be sceptical about the prospect of a jobless or even workless future. It is the latest version of the ‘lump of labour fallacy’, the idea that there is only a certain amount of labour and work to be done, so that if more of it can be automated or done by intelligent robots, human workers will be rendered redundant. In any case, very few jobs can be automated in their entirety. The suggestion in a much-cited study17 that nearly half of all US jobs are vulnerable to automation has been challenged by, among others, the OECD, which puts the figure of jobs ‘at risk’ at 9 per cent for industrialized countries.18

Acknowledge and accept that clients are governed by shareholder value concerns, and that the mission of the agency needs to be refocused on helping clients improve brand growth and profitability. Agency creativity is a factor that contributes to delivering results, but creativity is a factor, not an end in itself. Agency creativity no longer delivers results automatically, as it did during much of the Creative Revolution. It’s time to abandon the tired “we’re creative” marketing positioning associated with the creative paradigm, and to step up to the challenge of saying “we’re committed to delivering results.

Of course, to properly reward the “doers” you must correctly define what a doer is. This is central to the idea of execution. Simply put, a doer is a person who gets things done. Doing is meeting goals. Some goals are legitimately short-term goals that yield short-term results and are properly compensated on a short-term basis. But other goals are long-term and by definition we will not know if we have achieved those goals for some time. Consequently the people striving to meet those goals should be compensated on a long-term basis, with some portion of that long- term compensation based on achieving critical milestones toward the goal. And there are some goals that are so long- term that compensation should only be awarded when a person retires and his or her contributions to meeting those extremely long-term goals can be assessed. Leaders must take responsibility for setting the right rewards for doers. This is particularly true of boards of directors, many of which made egregiously bad calls in rewarding poor performance by the CEOs of their companies. Linked together as these behaviors are, rewarding the doers must be based on the correct metrics. For too long companies—and this often involved boards of directors— set “shareholder value” as one of the goals to be measured and rewarded in compensation plans. But the directors and CEOs who set shareholder value as a goal missed an essential point. Increasing shareholder value is an outcome, not a goal. If you set the right strategy with the right goals and execute well to implement the strategy and achieve the goals—growth in earnings per share, good cash flow, improved market share, for example—then shareholder value is the result. Get everything else right and shareholder value will take care of itself. EXPAND

A team of less than half a dozen people can change the culture of the whole organization and drive the business strategy. What's important is that the core team is retained and aligned to make sure that shareholder value is created,' says

HDFC Bank was the first of the private lenders to go public— even before it completed a full year. 'It was a mistake,' Deepak told me. The RBI required the new banks to go public within a year but all other lenders went back to the regulator and got extensions. 'We didn't ask for it. We were too naive,' Deepak said. 'Everybody took time as they wanted to get a premium. We sold at par, ₹10. But I have no regrets.' Deepak pushed for a par issue as the bank had nothing to show. And the disaster of parent HDFC's listing was still haunting him, though that had happened a decade and a half ago. In 1978, India's capital market was in a different shape and mortgage was a new product, not understood by many. HDFC put the photograph of its first borrower on the cover of its balance sheet, a D. B. Remedios from Thane, who took a loan of ₹35,000 to build his house. The public issue of HDFC bombed. In an initial public offering (IPO) of ₹10 crore, the face value of one share was ₹100. ICICI, IFC (Washington) and the Aga Khan Fund took 5% stakes each in the mortgage lender and the balance 85% equity was offered to the public, but there were few takers. The stock quoted at a steep discount on listing. For the bank, Deepak did not want to take any chance. So portions of the issue were reserved for the shareholders and employees of HDFC as well as the bank's employees. HDFC decided to own close to a 26% stake in the bank and NatWest 20%. Satpal was offered about 5% and the public 25%. The size of the public issue was ₹50 crore. 'We didn't know whether it would succeed. Our experience with HDFC had been a disaster,' Deepak said. But Deepak had grossly underestimated investors' appetite for the new bank. The issue, which opened on 14 March 1995, was subscribed a record fifty-five times. The stock was listed on the Bombay Stock Exchange (now known as BSE Ltd) on 26 May that year at ₹39.95, almost at a 300% premium.

In the first year of its operations, HDFC Bank, which was actually a mere two and a half months old, recorded a deposit base of ₹642 crore, advances of ₹98 crore, investments of ₹221 crore and a profit of ₹80.20 lakh, after paying tax of ₹40.60 lakh. There was not much business to talk about and hence its first annual report spoke about the four core values the bank stood for—operational excellence, customer focus, product leadership and professional people. The report tried to tell shareholders and investors what the bank stood for rather than what it had done, as very little had been achieved so far.

Questions to ask when analyzing a business Business - How does the company make money? - Does it seem like it should be a good business? Is it competitive? Do suppliers have too much power? Do customers value the product? Are there substitutes? - Without looking at financials, how does the company seem like it has done against competitors in its industry in terms of executing on its vision? - What reputation does the management team have? Do they seem honest? Straightforward? Valuation - What is the company's P/E multiple? Is it high or low for its industry? For the overall market right now? Why might the stock be trading at this valuation? - What is the company's free-cash flow yield? Is this a relevant metric given the stage the company is in? How does it compare to similar companies? - Is the company growing faster or more slowly than other companies with similar multiples? - Based on the number alone, does the company seem to have a rich valuation or a cheap valuation? Why might this be the case? Financials - What has been the trajectory of revenue growth over the past ten years? Why? What is it expected to do in the future? - How has the company's industry been growing? Is the company gaining or losing share in its industry? - What is the company’s level of profit margins? How does it compare to other companies in its industry? - How have margins varied over the past ten years? Why? - What percentage  of the company's costs are fixed costs versus variable costs? - What is the company's historical return on capital? Why is it high/low? What does this say about the quality of the business? - What is the trend in returns on capital? Why? What does this say about the returns the company will have to make on its future investments? - What is the company's dividend policy? Why? If they are paying no dividend or a small dividend, is there a danger that the company's management will waste shareholder's money? Technical - How have the company's shares performed against the overall market and its industry over the past twelve months? - What seems to be driving this under/over performance? - What key news events are likely to impact the stock in the future? - Do mutual funds and other large institutional investors seem to be buying or selling the shares? Sentiment and Expectations - What are the consensus earnings estimates for the next quarter and year? Do they seem aggressive or conservative? - Does consensus opinion seem overly bullish or bearish about the company's future prospects? - What insight do you have that the market might be missing that will cause the shares to appreciate?

They chase the cheapest labor, the weakest environmental regulation, and the lowest taxes under the premise that they are creating shareholder value, when in a bounded pasture they are in fact destroying it.

The Economics of Property-Casualty Insurance With the acquisition of General Re — and with GEICO’s business mushrooming — it becomes more important than ever that you understand how to evaluate an insurance company. The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most important of all, the long-term outlook for both of these factors. To begin with, float is money we hold but don't own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. Typically, this pleasant activity carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an "underwriting loss," which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money. A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company's true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings. An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what's presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed. As for Berkshire, Charlie and I attempt to be conservative in presenting its underwriting results to you, because we have found that virtually all surprises in insurance are unpleasant ones. The table that follows shows the float generated by Berkshire’s insurance operations since we entered the business 32 years ago. The data are for every fifth year and also the last, which includes General Re’s huge float. For the table we have calculated our float — which we generate in large amounts relative to our premium volume — by adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting agents balances, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance. (Got that?)

In the United States, most boards are benign, and the power resides primarily with the chief executive; boards tend to only become significant when it comes time to replace a failing CEO. The AB Inbev board, however, is the primary power center in the company. It exemplifies that boards can play a central role in setting BHAGs, developing strategy, sustaining culture, seizing opportunities and leading through tumultuous times. Without such a strong and unified board, AB Inbev would not have come through the 2008-09 challenges as strong as it did (and perhaps even not at all). The AB Inbev board pays constant attention to its own culture, disciplines and vibrancy, with as much fanatic attention as building and preserving the management culture of the company. Most important, it makes decisions and allocates capital for long-term shareholder value, measured in multiple decades, not in terms of quarterly moments. If more boards behaved this way, we would have better performing enterprises and lasting companies.