Stock Price Is the Outcome, Not the Objective

A CEO of a mid-cap Indonesian listed company sits in a board meeting and is asked what the IR function is for. The answer arrives reflexively: to maximise the stock price. The board nods. As far as everyone in the room is concerned, the question is settled. The IR budget gets approved on this basis. The CFO knows what to optimise for. The IRO knows what to report on. The communications function downstream knows what success looks like. The next quarter’s beat-and-press-release cycle begins, all of it pointed at moving the multiple up.

Ask the CEO and the board where they got this answer and the responses will be vague. The IR consultancy that pitched them, probably. The textbook the CFO read for the IRO interview, possibly. The way every peer company describes its IR function, likely. Bragg, if anyone has read Bragg, who states it explicitly: the key reason for building an investor relations department is to increase the stock price.

The answer is so widely accepted in the IR practitioner tradition that it functions as an unargued premise from which everything else follows. It is also, once you read the broader literature on corporate governance, valuation, and shareholder cultivation, the answer almost nobody outside the IR practitioner tradition would give. The corporate-law scholars would not give it. The valuation teachers would not give it. Jack Welch, late in life, would not give it, and Welch is the executive most associated with championing it in the first place. The empirical evidence on shareholder returns since the shareholder-value doctrine became dominant does not support giving it.

This is the most foundational of the disputes in this series. The Investor Base You Have Is the One You Chose covered targeting; Conservative Guidance Is a Habit, Not a Discipline covered guidance. Both of those rest on assumptions about what IR is supposed to be doing. This essay engages those assumptions directly. If the IR function is not primarily about maximising the stock price, what is it for? The answer matters because almost every operational decision downstream changes when the question is answered differently.

The consensus position, stated plainly

Steven Bragg’s Running a Public Company names it most directly. Without active IR, investors rely on historical SEC filings and media coverage. They “will certainly not bid it up above the average market valuation of the peer group,” which leaves the company’s cost of capital higher than it needs to be. A low price also attracts hostile takeover bids and short sellers. So the IR function exists to push the multiple up, lower the cost of capital, deter hostile bidders, and repel short sellers. Stock-price maximisation is the operational objective. Every IR activity is justified by reference to it.

The rest of the practitioner shelf corroborates the framing implicitly — the operational manuals, the trade-association bodies of knowledge, the regional textbooks. None of them argues against it. Most assume it. Marcus’s Competing for Capital takes the further step of building the entire framing of IR-as-marketing on it: if stock is product and investor is customer, the marketing function’s objective is to maximise what the customer pays.

The framing is not new. It dates, in its modern form, to Jensen and Meckling’s 1976 article on the principal-agent model, which established the intellectual foundation for what became the shareholder-value doctrine. The doctrine spread through business schools through the 1980s, through executive compensation design through the 1990s, and through the IR practitioner tradition continuously since. By the time most current CEOs were appointed, it was simply how IR was understood. The unargued premise had become the default.

Why shareholder value is now being argued against

The most direct critique is Lynn Stout’s The Shareholder Value Myth (2012). Stout is a corporate-law scholar, not an IR practitioner, and her book engages the question at the legal-and-economic-foundations level rather than at the IR-practice level. Her central claim is short. Shareholder-value maximisation is “an ideology, not a legal requirement or a practical necessity of modern business life.” US corporate law does not require directors to maximise shareholder wealth as measured by current share price. The fiduciary duty owed to the corporation is broader than that. It includes obligations to multiple constituencies whose firm-specific contributions are necessary for the corporation to function as a productive enterprise.

Stout calls this team-production theory. The illustration she uses is deliberately simple: moving a large sofa requires two or more people, and if one quits in the middle, the specific efforts of everyone are wasted. In a corporate setting, capital, employee skills, customer loyalty, supplier relationships, and community infrastructure are all firm-specific contributions that have to be protected from opportunistic extraction. Treating shareholders as the sole residual claimants whose wealth is to be maximised is, in this framing, both legally inaccurate and operationally destructive. It produces decisions of the kind that prioritise the one investor group whose contribution is most fungible over the constituencies whose contributions are firm-specific and irrecoverable. Extracting cash to buy back shares. Cutting R&D to clear quarterly targets. Declining productive investment because it depresses near-term EPS. Anyone who has sat in a budget meeting where next year’s development spend was traded against this quarter’s print has watched the extraction happen in real time.

The empirical complication is the part that should disturb practitioners most. Roger Martin calculated, and Stout cites, that real compound annual returns to S&P 500 shareholders averaged 7.5 percent between 1933 and 1976. After 1976, the year the shareholder-value doctrine became intellectually dominant, the same average fell to 6.5 percent. The era of explicit shareholder-value maximisation produced lower shareholder returns than the era before it. Stout acknowledges confounding variables and does not claim the calculation proves causation. She does claim it provides no empirical support for the proposition that shareholder-value-maximisation produces better outcomes for shareholders. The doctrine that was supposed to be good for shareholders has, on the broadest available measure, not been.

Then there is Jack Welch’s reversal. Welch, the executive most personally associated with the rise of shareholder-value maximisation through his tenure at GE, “later described shareholder value as being one of the dumbest ideas in the world.” The line is uncomfortable for the practitioner tradition because it comes from the tradition’s most identifiable champion. It is the kind of admission that would not be useful to ignore.

The valuation-discipline angle

Aswath Damodaran, working from the valuation side, arrives at a related critique through different reasoning. Narrative and Numbers treats intrinsic value as the function the company should be optimising. Stock price is downstream of intrinsic value and reflects the market’s current estimate of it. Managing the stock price directly, through guidance management, share repurchases timed to support the multiple, communication choices calibrated to short-term sentiment, distorts the conversation between company and market in ways that produce the narrative-numbers gap Damodaran’s whole framework is designed to expose.

The mechanism is precise. Intrinsic value moves on long-cycle drivers: revenue growth trajectory, reinvestment efficiency, returns on incremental capital, competitive positioning, terminal-value sustainability. Stock price moves on a mixture of intrinsic-value updates and short-cycle sentiment about quarterly prints, peer-group movements, macro-news cycles, and analyst-report momentum. When the IR function optimises for stock price directly, it ends up communicating to the short-cycle-sentiment portion of the market (earnings beats, peer-comp positioning, near-term catalysts) at the cost of the long-cycle-driver portion. The intrinsic-value progress the company is making does not get communicated as clearly as it could be, because the communication discipline is calibrated to a different objective. Over multi-year horizons, the stock price ends up tracking the company that the company has been communicating itself as, rather than the company that the company actually is. For the people preparing the next set of results, the distinction is anything but abstract: it is the difference between an earnings call scripted to defend the quarter’s print and one scripted to explain what this year’s reinvestment is expected to earn.

A company that optimised instead for accurate communication of intrinsic-value drivers would have a stock price that moved with the long-cycle reality of the business. Sometimes that price would be higher than the stock-price-maximisation programme would have produced; sometimes lower, particularly in periods where the long-cycle reality was unfavourable. But the price would, in Damodaran’s framing, be correct: a function of the value rather than of the management of perception.

Cunningham and the clientele consequence

Lawrence Cunningham’s critique runs through the clientele effect that opened this series. The shareholder base a company attracts is determined by how the company communicates. A company whose IR function is explicitly optimising for stock price attracts shareholders who price on stock-price-management signals: short-duration holders, momentum funds, sentiment-driven generalists, sometimes activists. The shareholders most aligned with intrinsic-value progress, the concentrated and long-duration and narrative-aligned, are repelled by exactly the activities the stock-price-maximisation programme runs. They do not want a CEO who is managing the multiple. They want a CEO who is running the business and reporting honestly on the results.

The cycle is self-reinforcing. The stock-price-maximisation programme attracts the shareholders who reward stock-price management. The board, looking at the resulting shareholder base, concludes that the IR function is doing its job. The CEO, looking at the same base, concludes that managing the stock price is what the shareholders want. The shareholders who would have wanted something else are not in the room, because the IR function repelled them three years ago.

Cunningham’s framing makes the loop visible. The stock-price-maximisation objective does not just produce worse intrinsic-value outcomes; it produces a shareholder base that confirms the objective and prevents the company from noticing the cost. The Berkshire alternative, in Cunningham’s reading, is a communication practice that ignores stock-price movements, a capital-allocation discipline that operates entirely on the price-versus-value test, and shareholder letters that address long-duration holders without forecasting quarterly numbers. That combination produces a different base, one that does not need the stock-price-maximisation activity to be retained.

The operational cost of chasing shareholder value

Baruch Lev’s CFO survey, which Conservative Guidance Is a Habit, Not a Discipline drew on, deserves another mention here. Eighty percent of surveyed CFOs would cut discretionary spending on research and development, advertising, and maintenance to meet an earnings target. Fifty-five percent would delay starting a new project, accepting a small loss of intrinsic value to make the quarterly print. The numbers are not from a fringe survey. They are from a methodologically careful study of senior CFOs at large listed companies.

The behaviour is the operational consequence of stock-price-maximisation as the IR objective. If the function exists to push the multiple up, and if the multiple is sensitive to quarterly prints, then any operational activity that improves the print at acceptable long-term cost is justified by the objective. R&D delays, advertising cuts, maintenance deferrals, project postponements. Each looks small on the income statement. Across the population of large listed companies, the aggregate effect is significant. Lev frames it directly: “the belief in investors’ myopia, whether founded or not, affects managerial long-term decisions, to the detriment of investors and the economy at large.” The objective that was supposed to be good for shareholders has been producing decisions that reduce the underlying value the shareholders own.

This is the part where the divergence becomes operationally consequential. The legal-foundations critique can be dismissed as academic. The valuation-discipline critique can be dismissed as theoretical. The clientele-effect critique can be dismissed as Berkshire-specific. Lev’s survey cannot be dismissed. It is direct empirical evidence that the CFOs running stock-price-maximisation IR programmes are making operational decisions they know reduce intrinsic value, in order to clear quarterly numbers that the IR programme is calibrated to optimise. The behaviour is the objective made operational. The behaviour is also, on the evidence, harmful to the shareholders the objective is supposed to serve.

So what is the IR function for?

If the IR function is not primarily about maximising the stock price, what is it for? The cross-disciplinary literature converges on an answer the IR practitioner tradition has not quite stated explicitly.

The IR function is for accurate information transfer between the company and the investment community, calibrated to the audience the company wants to attract and retain. Accurate because the audience needs to update its models correctly. Information transfer because the function’s job is to move what the company knows about itself across the boundary to the people whose decisions depend on knowing it. Calibrated because the audience the company wants is not the same as the audience that exists by default, and the calibration is the targeting decision this series opened with.

Stock price, in this framing, is downstream of the function but not its objective. A company whose information transfer is accurate, calibrated to long-duration narrative-aligned holders, and operating under a discipline of fact-anchored disclosure produces a stock price that reflects its intrinsic value trajectory. Sometimes that price is higher than peer averages; sometimes lower. The function’s success is measured not by the stock price but by whether the information being transferred is accurate, whether the audience receiving it is the one the company wants, and whether the decisions being made on the basis of that information are the decisions that compound advantage over multi-year horizons.

The change in framing is operationally significant. An IR function calibrated for information transfer asks different questions and measures different things than one calibrated for stock-price maximisation. The questions are about clarity, completeness, and audience fit rather than about sentiment management and multiple expansion. The measurements are about narrative coherence across artefacts, disclosure ratio between favourable and unfavourable specifics, and shareholder-base concentration and duration, rather than about stock price relative to peer group. The recommendations the IR head makes to the C-suite are about disclosure discipline, capital-allocation explanation, and shareholder cultivation, rather than about quarterly-print management and analyst-relationship optimisation. You can see the difference in a single board pack: one version leads with the share price against the peer set; the other leads with what the company disclosed, who absorbed it, and what the holder register did in response.

Confessions and pattern

This is the third essay in the series, and the third practitioner-humility moment. I have advised on IR programmes whose stated objective was, more or less explicitly, the one this essay is arguing against. The programmes did what stock-price-maximisation programmes do. They produced beats, managed analyst expectations, supported the multiple in difficult quarters, and looked successful by every metric the framing makes available. They were also, looking back, producing decisions of the kind Lev’s CFO survey documents. Small operational compromises calibrated to make the next print, accumulating into a pattern that quietly reduced the long-cycle value being created.

I do not think the CEOs and boards I worked with were operating in bad faith. They had been taught that this is what IR is for, by the literature available to them and by every peer interaction they had. I had been taught the same thing. The cross-disciplinary critique was not in the room, because none of us had read it carefully enough to bring it. The objective was unargued in the way unargued premises are. Not defended, not challenged, simply present. The cost of that absence is what this essay is trying to make visible.

The IR practitioner tradition has been teaching scoreboard-management for forty years and calling it the objective.

What I think the IR consensus has gotten wrong, specifically, is the conflation of stock price as scoreboard with stock price as objective. The scoreboard role is real. A listed company’s stock price is the public, continuous, observable measurement that investors and analysts produce. The IR function should care about it in the way any organisation cares about its observable performance metrics. Pay attention, report on it, understand what is moving it. But scoreboard is not objective. The team-sport analogy makes this obvious: a football team’s points scored is the scoreboard; the objective is to play well enough that the scoreboard reflects the quality of play. Confusing scoreboard for objective produces teams that game the scoring system rather than develop the play.

The Asian context

Asian listed-company CEOs are, in my experience, even more share-price-focused than their US or European counterparts. The reasons are partly cultural (face matters, peer comparisons are visible, family-business protectionism rewards visible stock-price strength) and partly structural. Many regional companies have controlling shareholders whose personal wealth is concentrated in the stock; the stock price is, for them, the most visible measure of their own success. The IR function’s framing gets shaped accordingly. The board meeting that opened this essay is approximately the board meeting that takes place in most regional listed companies, with national-specific variations.

The cross-disciplinary critique applies with equal force in the regional context. The CFO who cuts R&D to make a quarterly print is making the same decision in Jakarta as in New York. The intrinsic-value cost of running the function on the wrong objective is the same cost. The opening this creates for regional companies willing to reframe is, if anything, larger than in mature markets, because the regional peer set is more uniformly running the stock-price-maximisation programme. The differentiation available to companies that stop is correspondingly sharper.

The board conversation that needs to happen is not technical. It is the question this essay started with: what is the IR function for? If the answer is to maximise the stock price, the programme that follows will look like every other regional IR programme. Competent, conventional, and quietly making decisions that erode the value the board exists to protect. If the answer is accurate information transfer to the shareholders we actually want, the programme that follows will look different from the start, and the stock price, eventually, will reflect what the company is actually worth rather than what the IR programme has been managing it toward.

Reopening a settled question

Go back to the board meeting this essay opened with. The question was asked, the reflexive answer arrived, and the IR budget was approved before anyone had examined the premise underneath it. Nothing in a listed company’s routine forces that premise onto the table. The budget assumes it, the CFO is measured against it, the peer set repeats it back. A premise that everything rests on and nothing tests stays unargued indefinitely. This one has had forty years.

The board is the one room where it can be tested, because the board is the body that approved the budget on the strength of it. The test costs an agenda item. Put the question up — what is the IR function for? — and hold it open for longer than the one sentence it usually gets. Stout’s book has been on the shelf since 2012; Welch’s reversal predates it; Lev’s survey numbers are public. The material for the conversation exists. What has been missing is a board willing to schedule it.

The scoreboard will keep updating whichever answer the room settles on. Whether the team underneath it is being coached to play better or to game the scoring system — that is what the answer determines, and only the board can give it.

The next essay, IR Is Not Really Marketing (And the Difference Matters), picks up the related question of vocabulary. If the IR function is for accurate information transfer rather than for stock-price maximisation, the marketing language that organises the profession (stock as product, investor as customer, IR as the sales function) is doing a particular kind of damage. That damage is where the next essay starts.