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Criticism on Value Based Management
Anneke Zwart, Moderator
Some criticize the principles of value-based management, arguing it fails to take into account other constituencies than stakeholders (locals, customers, employees, environment etc). But in order to create value for shareholders, there should also be a good reputation in 3 areas:
1. The quality of goods and services.
2. Capability to find talented people, hire them and keep them as employees.
3. The community/environment.
Indeed, evidence exist that value for shareholders could exist only if there is value for other constituencies as well. For example, once customers are not pleased, they will buy from competitors. Or, if employees are unsatisfied, they will leave and change their job.
Source: S. D. Young and S. F. O'Byrne, EVA and Value-Based Management: A Practical Guide to Implementation.
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At the End It's the Money that Decides!Pouw, Member Stakeholders (a shareholder is one of them) are free tot leave, so they stay as long as their personal aims are satisfied. Creating value above the second best reward keeps them on board.
At the end it's the money which decides, too much emphasis on the other P's may cause some to leave. |
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Temptations of VBM to Only Consider Short Term and Interests of ShareholdersRanjan, Member Considering values only in the interest of shareholder is not right, it has to be for all the stakeholders. Limiting values just to shareholders is the main reason that big organisation in the world are showing unethical behaviour while maximising values for the shareholders. Oil price rise, financial crisis of 2008 and labor manipulation are the biggest examples of it. The same has become bottleneck in industrialising India.
Firms must create win-win situation for all stakeholders, then only they will bring consistent results over a long period. Value based management will need investment and effort like any approach for management, and it would be in aligning stakeholders and keeping track of organisation's behaviour and correcting the tilt which may have been caused by temptation of short term gain. |
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Value Based ManagementRajesh Sharma, Member VBM is a consistent technique to stand n the business for the long run by providing quality product, ethical concern, human value, customer response, and financial accountability toward investors. |
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