Shareholder or Stakeholder model?

Does the corporation exist for the benefit of shareholders, or does it have other, equally important stakeholders, such as employees, customers and suppliers?

In a study titled, "Stakeholder Capitalism, Corporate Governance and Firm Value" (2007), finance professor Franklin Allen (e.a.) tackles this issue. In showing the various benefits of the stakeholder approach, he demonstrates that the issue is not as settled as some researchers and business people in the US or the UK might think.

Several conclusions emerge from the study, which uses a mathematical model to explore the advantages and disadvantages of stakeholder-oriented firms. First, stakeholder-oriented companies have lower output and higher prices, and can have greater firm value than shareholder-oriented firms. Second, firms may voluntarily choose to be stakeholder-oriented because it will increase their value, according to the study.

In a recent study (2008) called, "Rhineland Exit", Dutch (CPB) researchers Bovenberg and Teulings defend the victory of the Shareholder model over the stakeholder model (Rhineland model). They also state that the principle of maximization of shareholder value, being the ultimate goal of the firm, is at odds with the Rhineland philosophy of a balanced treatment of the interests of all stakeholders.

Why arguing so much about share or steak? By choosing the "stakeholdermodel with weights" it's simple to accomodate and optimize the final model to the company goals.

Source

Credit Crisis Manageable?

In order to succeed in a certain action, we often develop an action plan, a process that defines sub-actions in terms of who, what, when and where.

To guarantee that we succeed as much as possible, we have to maximize the control of this process of sub-actions. Make the process manageable.



In managing this process it's important to identify the nature and co-dependency of your sub-actions.

In general it's important to characterize sub-actions as follows:

Characteristic	Understandable	Predictable	Solvable
Simple	++	++	++
Complicated	+	+	++
Complex	-	-	+
Chaotic	--	--	-

Examples

Characteristic	Example	Description
Simple	Doorbell	Single component/ process with defined output
Complicated	Watch	Several components working together with defined output
Complex	Weather	Many interdependent components with hardly predictable output.
Chaotic	Clouds (form)	No sub components to identify, output unpredictable

Always analyze and characterize the components or sub actions of your action plan.
Not doing so will certainly cause trouble.

Example
One of the causes of the 2008 credit crisis is that we try to manage an in essential 'chaotic process' as a 'complicated process'. More traditional regulation rules (or governance back up) won't stabilize the banking system on the long run (in fact they make it worse), because these rules would imply that the nature of the financial markets is known and can be captured in a controllable mathematical linear system.

Financial markets are complex and chaotic systems, just like the weather. This implicates that regulation should be much more focused on "Plan B" measures than on detailed rule based regulation.

This means that regulation has to be formulated in such a way that Banks, instead of proving more and more that they will 'never' be insolvent (e.g. calculated risk=0,5%, that can't be calculated!), are forced to deliver Plan B's in which they state how they'll act in the 'unexpected' case of insolvency or iliquidity (average at least once in 200 years).

Just like you've got an umbrella in your car (Plan B), because you know that even though the weather forecast was 'sunny', you never can tell precisely when it's going to rain.

Most processes in life turn out to be chaotic on the long run. Analyze and control them, but don't forget to (always) carry your "Plan B" in your pocket.

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Credit Crisis caused by Pyramid scheme

"Modern banking principles, as defined in the fractional reserve banking system, are essentially an ordinary (and illegal!) Pyramid scheme based on the arithmetic (geometric sequence) of fractional banking.

In an interview, called The Game Is Over, Michael Hudson states that the Fed and Treasury are following the traditional “Big fish eat little fish” principle of favoring the vested interests.

Just like in another Youtube movie he remarks that instead of bailing out the big financial institutions and rescuing billionaires and private investors, the government should have saved only the savings of savers at the bank, pensioners, Social Security recipients and other small fry.



No doubt, given How The Credit Markets Work, current measures will not solve the credit crisis ( Nothing Proposed Will Solve the Credit Crisis ).