World’s Most Overvalued Opinion Poll

"IF
it goes up, you can sell it and make money." That was my father trying to
explain ‘the market’, after buying some pharma stock in my name. I was in
school, and struggled with trying to figure out why prices jumped about every
day.

Twenty years later, I still don’t know. All my wisdom says, Wipro’s stock
will go up tomorrow. Oops, it went down. The market knows something I don’t.
It even knows things that the management doesn’t.

How big a deal is the share price today? Less than it was. But it still keeps
CEOs awake, worrying about IR, image, media reports, speculation...

And shareholder value. The double-edged sword.

Before companies raise money from the market, they enhance their ‘value’,
often with big brand campaigns. This is their demo phase (for the best
companies, the demo is closer to reality).

Then, the lifetime of maintenance. Quarterly sugar-coats. Packaging to make
actions palatable, with IR and PR. Yes, image is closer to reality for the
well-governed. But how much time and energy should managers divide between (a)
maintaining shareholder value, showing profits every quarter, and influencing
zillions who know very little about infotech and even less about running
companies, and (b) strategy, tactics, action for the real long-term health of
the company? The greater common logic of the market says–we, the people, know
what’s good for Reliance better than one Ambani does. Absurd.

All this is not unlike our political system. The ‘initial public offering’
of promises gets the votes. Once in power, how much energy should the party put
into (a) maintaining that vote-bank, versus (b) taking ‘unpopular’ decisions
that are good for the economy, like scrapping a subsidy? It’s a balance. At
least they don’t publish quarterly results.

No wonder so many companies have ‘gone private’ in recent years,
globally. You still maximize value for stakeholders, but you can think
longer-term, rather than worry about how two lakh people will react to every
action.

The principle of maximizing shareholder value can take credit away from the
fundamentals and professionals running the company, and shift it to an opinion
poll of a million shareholders. If some make-up and ads enhance the share price,
it’s good value. We had those bubbles in 2000-01, with a record boom in
shareholder value.

‘The market’ is a necessary evil. Companies do raise funds from the
public. And shareholder scrutiny and the demands of disclosure do impart rigor
and transparency. But those indices, trends and graphs are no indicator of
corporate health, today or tomorrow. They’re for the record–a record of
perception and of the opinion poll that is the stock market.