Multiple ways to attain a high share price

After seeing the negative consequences that occurred in the Enron scandal, many businesses have made an effort to change the way they operate in order to avoid similar results. Enron’s greatest downfall was that they focused only on attaining a high share price while failing to attend other important aspects of the business. There are other social, economic and environmental activities that could be measured in order to make positive impact on the business. Enron knew that their finances were being observed, measured and recorded by shareholders and Wall Street; therefore, they made all the possible changes or modifications in their financial statements to meet the high expectations of the market. As for the other activities mentioned, they could afford to slack off since they weren’t being measured. Seeing the negative effects by paying attention to this, there has been an effort by agencies to begin measuring these types of activities because they could become opportunities to create a sustainable business.  The Boston-based non-profit CERES formed The Global Reporting Initiative (GRI) in order to allow companies report their periodic social responsibility and environmental reports. The GRI was modeled after GAAP (Generally Accepted Accounting Principles) which is the standard framework of guidelines for financial accounting used in American companies. The GRI, on the other hand, has guidelines to measure environmental, social and economic reporting and give them the same importance as financial reports since these are aspects that could also influence investors. Eventually the GRI and GAAP could be combined to inform the company’s financial and non-financial outlook and make them both equally important for the success of the organization. In a wired world where people are better informed of the organizations activities, creating measurements for non-financial activities can also improve the share price of the company.

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3 Responses

  1. Enron definitely shed light on the riskiness of relying too heavily on stock price, but do you think the majority of corporations are actually changing their attitudes and/or behavior as a result? As Molly enlightened me of, emphasis on shareholder value is associated with distinct leadership styles, so I would be interested to know if anyone has evaluated and analyzed trends/changes in particular leadership styles post-Enron.

  2. Slowly but surely our society is beginning to recognize the negative consequences associated with organizations placing dominant emphasis on shareholder value. Although it took the collapse of Enron, Worldcom, Lehman Brothers and the recent economic recession to help get the point across, people are beginning to make strides to help organizations be motivated by more than just profit. I think that business schools could play a large role in this effort. The styles of leadership being taught at those institutions during Enron’s time were centered around shareholder value. A study was conducted where students were asked if they believed that the sole purpose of business was to maximize shareholder value. Upon entrance into a business program 62% responded yes. Upon graduation that statistic reached 82%. I think a curriculum change needs to be made where the future leaders of America learn how to run a business founded in integrity, honesty and morality and to keep our planet’s interest as a top priority.

  3. I completely agree with Molly! I think that there are more companies that are trying to achieve other goals besides having a high share price. For example, GE began going green after they changed CEO’s and has giving a great example to other companies to have sustainability in their strategies. I think that leaders are paying more attention to world problems such as social, environmental among others than ever before. Also they are listening to outside perspectives to bring more ideas into their business operations instead of limited views which was the problem at Enron. There is still work to be done, and as Molly said business schools play a huge role in this change and so do we as students.

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