Management’s Fourth Dimension

Abstract

THIS PAPER contends that managements of publicly held corporations are now evolving a new "fourth dimension". In its traditional role of supplying better products at lower prices, management has practiced, with increasing efficiency, in the dimensions of: 1 ) production, 2) finance and 3) marketing. Now management is responding to a demand for a new result-to maximize the value of the corporation's common stock. Managements are concerned with this demand in varying relative degrees. A new management is evolving which is primarily concerned with this. We shall explore how this demand originates and how management responds. In a free economy, producers are constantly responding to the demands of consumers. This is no less true in the field of investments. As tastes of the investor (who is the consumer of investment value) have changed, over the years, the corporate manager (the producer of investment value) has responded. Investors influence management philosophy by bidding up the market price of stocks of companies whose managements they approve and depressing (through sales) the market price of stocks of companies whose managements they disapprove. Significantly, the increasing use of management stock option plans has made managements personally more sensitive to the long-term price action of their stocks.