In term of a business, shareholders are the owners of a corporation, and they purchase stocks because they want to earn a good return on their investment without undue risk exposure. In most cases, shareholders elect directors, who then hire managers to run the corporation on a day-to-day basis. Because managers are supposed to be working on behalf of shareholders, it follows that they should pursue policies that enhance shareholder value.
There are cases in which a stock increases when a company announces a plan to lay off employees, but viewed over time this is the exception rather than the rule. In general, companies that successfully increase stock prices also grow and add more employees, thus benefiting society. Note too that many governments across the world, including U.S. federal and state governments, are privatizing some of their state-owned activities by selling these operations to investors. Perhaps not surprisingly, the sales and cash flows of recently privatized companies generally improve. Moreover, studies show that these newly privatized companies tend to grow and thus require more employees when they are managed with the goal of stock price maximization.
Each year Fortune magazine conducts a survey of managers, analysts, and other knowledgeable people to determine the most admired companies. One of Fortune’s key criteria is a company’s ability to attract, develop, and retain talented people. The results consistently show that there are high correlations among a company’s being admired, its ability to satisfy employees, and its creation of value for shareholders. Employees find that it is both fun and financially rewarding to work for successful companies. So, successful companies get the cream of the employee crop, and skilled, motivated employees are one of the keys to corporate success.