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4.4 Shareholder Value as a Central Control Concept

The business models of banks therefore have a right to exist only if they meet customer needs (the WHAT), and do so with the price/performance ratio that customers also consider to be attractive (the HOW). The third essential framework element in designing a bank's business model is the question as to how companies can measure their success in fulfilling the first two aspects.

Against the background of the development—since the 1980s—of dynamic methods for calculating company value, the principle of shareholder values, defined by Alfred Rappaport, has established itself as the central measuring parameter for the performance of management based on the generation of added financial value (Rappaport and Klien 1998). According to this principle, the objective is to maximise the value of the company for shareholders.[1] The market value of equity can be calculated using the DCF (discounted cash flow) method or, in the case of listed companies, by deriving the company value[2] from the stock market capitalisation. Departmental, team and individual employee goals in publicly listed banks are derived from the superordinate profitability target and are decisive in evaluating performance, granting bonus payments, and reaching career targets (Volkart 2006).

In recent years there has been increasing criticism of this concept of success, calculated purely using financial criteria, with high profitability targets[3] and correspondingly high bonus payments to management. One main objective of economies is to safeguard the optimised cycles of goods, services and finance:

this leads to criticism of the work carried out by management in publicly-listed companies and banks, whose success is measured primarily according to short-term profit targets. Such an approach unilaterally prioritises the interests of the investors, neglecting those of other claimants and target levels (ecological, social, ethical and socio-political)[4]—this discussion is essential to the transformation of present-day business models.

  • [1] In the 1980s (equity) capital was a scarce commodity and therefore the focus was placed on shareholders' profitability, which had been somewhat neglected in previous years.
  • [2] The total capital value from DCF minus the market value of the borrowed capital produces the market value of equity.
  • [3] 25 % equity profitability was an established measured and target value prior to the outbreak of the financial crisis in 2008.
  • [4] On the discussion in Switzerland, which also includes Germany, see also Handelszeitung (2013).
 
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