Top vs. flop: Saori Dubourg, Donald Trump and the stock market

Börse

In the corona crisis, the stock markets have moved far away from reality – especially in the USA. This underlines the fact that prices and indices are poor indicators for assessing economies and companies. Can we change this?


 

If the future is traded on the stock exchange, the Corona pandemic will soon be over. During the week, the major indices almost returned to pre-crisis levels – even in the USA, where the virus is raging particularly hard. This is a welcome argument for Donald Trump, who likes to see rising prices as proof of successful economic policy.

But the US president is mistaken. After all, share prices only reflect the true situation to a limited extent – if at all. A look at the S&P 500 shows this: in the last economic cycle, the groups listed there provided shareholders with a whopping nine trillion dollars in returns (with a market capitalization of 23 trillion dollars).

But this was not an expression of successful business. Companies had financed dividends and share buybacks “mainly by increasing the proportion of debt,” writes the fund company MFS. This had driven up valuations “completely detached” from economic growth – and was thus a prime example of the “shareholder-primacy” doctrine.

Why market value rankings are worth little

The decoupling proves that stock markets are poor indicators for countries and companies. So please do not come to us with stock market rankings to call for “national champions” in Germany. And please come up with better ideas than “conglomerate discounts” to propagate the streamlining of corporations.

We are convinced that those who make stock market prices the yardstick lay the foundation for wrong decisions in economic policy and business. This is all the more true after the Corona crisis, as shareholder primacy continues to come under pressure. In the future, cash reserves will be more important than high dividends – and stable supply chains will take precedence over cost optimization.

The pandemic could therefore accelerate the delisting trend, because after leaving the stock market, management boards often no longer have to fight shareholders with a short-term orientation. It would therefore be all the more important to make the stock exchange a better place whose mechanisms do not make long-term oriented corporate management more difficult.

“Mapping the Social Market Economy in the Balance Sheet”

In this context, we have proposed making corporate governance standards a condition for a listing. In this way, independent supervisory boards could become a bulwark against activist shareholders.

Another exciting approach is the “Value Balancing Initiative” that managers and experts around BASF Board member Saori Dubourg are promoting. The goal is to create balance sheets that reflect the value of companies for all stakeholders. Wages and training initiatives therefore do not (only) appear as costs, but also as positive value contributions.

“We want to reflect the social market economy in the balance sheet,” says Dubourg. There is no question that such balance sheets can promote long-term thinking and at the same time strengthen long-term investors. Because they would receive meaningful, comparable key figures and more transparency. In addition, indices and prices would be created that are closer to reality – and thus better indicators.

However, management and supervisory boards should not wait for this, but rather determine the true value of their company now. This can only make decisions better – especially in view of the new expectations placed on companies.

 

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