No wonder the company is in business to make money. Although the bosses of some of the largest and most profitable companies in the world will say that there are many other reasons; such as creating and maintaining jobs, personal job satisfaction, environmental concerns, etc., the bottom line is that one of the main responsibilities and business objectives of companies is to maximize shareholder wealth. The concept of maximizing shareholder wealth is what causes investors to buy shares in a corporation in the hope that they will earn high returns on their investments. However, it also leads to the question, “How far will a company go to maximize shareholder wealth?” In the movie “Other People’s Money,” beginning with Danny DeVito, maximizing shareholder wealth was the prominent theme; which was the final factor that led Danny DeVito to persuade the New England Wire and Cable Company shareholders to give him the votes he needed to have a majority stake in the company and to liquidate the assets if he so desired.
Danny DeVito, also known as “Larry the Liquidator,” plays a corporate robber who takes over companies through a hostile takeover and sells that company’s assets for huge profits. The last money-making opportunity Larry set his sights on was the New England Wire and Cable Company, a family-owned business that prides itself on treating its customers fairly and its employees with integrity. However, as Danny DeVito describes in a shareholders meeting, that won’t put money in shareholders’ pockets. It is only because of that fact that Larry will be able to successfully take control of the company. New England Wire and Cable Company is a division of the company that is losing money and therefore losing shareholder investments by having a declining stock price and minimal new business opportunities in the offing. Larry’s plan is simply to take over the company and sell the assets of the New England Wire and Cable Company division to make millions. That’s the name of the game with corporations, right?
From a financial standpoint, Larry makes a compelling case for shareholders that many would say can’t be ignored. The selling point that Larry makes very clear is the book value per share of the stock to shareholders, which is a settlement formula that represents the amount each share would receive if the company were liquidated. If Larry gets shareholder votes, takes control of the company, and sells the assets, the liquidation value per share of the New England Wire and Cable assets sold in the hostile takeover Larry is planning is $ 25 per share. . Comparing this amount to the initial market price per share of $ 10, a net profit of $ 15 per share is obtained for the shareholders on liquidating the company. However, if shareholders voted against Larry and the liquidation of the company did not materialize, shareholders would have the potential to continue to lose their investment in a company that was no longer profitable. The decision does not seem complicated for shareholders: maximize their equity by liquidating the company or continue to lose money investing in an unprofitable company? However, it is a more complicated decision than what Larry wants to convey to shareholders. It is also where the ethics debate enters so strongly into the role of American accounting and business.
The role of ethics has been at the height of discussion since some major accounting scandals (Enron, WorldCom, etc.) emerged in recent years. In the movie, Larry is only concerned with the bottom line of maximizing shareholder wealth. As Andrew “Jorgy” Jorgenson, president of New England Wiring and Cable, said at shareholders’ meetings, it is important to also consider all jobs that will be lost due to the liquidation. A shareholder must decide whether the ethical implications of taking a company that employs many in their area and selling the assets for a profit for themselves is worth the financial reward. Too often it is exposed that money-hungry executives like Larry will do anything to create wealth, including unethical practices. This was also the case at Enron in 2002, when top executives engaged in accounting fraud to create wealth for themselves and maximize the wealth of their shareholders, which ultimately led to the demise of the company and jail time for the chief financial officer. and the executive director. The movie “Other People’s Money” does a good job of drawing attention to the issue of ethics and greed in society, which will always be at the forefront of American business.