How Shareholder Interests Can Negatively Affect Corporate Performance: An Insight into Rivian's Recent Struggles

How Shareholder Interests Can Negatively Affect Corporate Performance: An Insight into Rivian's Recent Struggles
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It is a delicate balance when an automotive company goes public, as they must deliver what customers want while also delivering good returns for shareholders. Unfortunately, many companies have made the mistake of listening to their shareholders rather than their paying customers; General Motors and Boeing are two prime examples. GM wasted years trying to increase stock values by selling poor quality products, while Boeing's reputation was tarnished due to cost cutting measures that lowered aircraft quality. The beancounters took control over the product engineers and forced them to cut costs in places where it was obvious to the customer and detrimental to customer perception.

Rivian has recently faced a similar situation, where shareholders sued the company for rolling back price hikes for reservation holders. This decision was unpopular with those who had been waiting for years to take delivery, but it helped Rivian's financial picture. It is important to note that the lawsuit wasn't necessarily about getting money from the company, but more likely an attempt to nudge Rivian towards a course correction that increases revenue.

The long-term success of any publicly traded company requires both shareholder and customer satisfaction. Ideally, these interests should not be in direct conflict; however, this is often easier said than done. Many wannabe customers (including some shareholders) are willing to forgive missteps if it means benefiting the company in the long run. But if Rivian continues its inconsistent, indecisive behavior and loses consumer/customer confidence, its share price will suffer and it could eventually be bought out by another company at a cheap price.

Ultimately, when it comes to corporations, shareholders matter most - whatever props up the share price matters most. Companies must accurately predict market conditions, supply chain woes and inflation in order to maintain faith in management and prevent surprises which can negatively affect the share price. It is therefore essential for Rivian executives and managers to understand their business well enough to accurately gauge overs and unders within a very small variance - otherwise their stock may continue to struggle.

What is the story about Rivian?

Shareholders are suing Rivian for rolling back the price hikes for reservation holders. This site exploded last week with understandable anger over the price increases and discussions that happened here helped nudge Rivian in its decision to reverse that move.

What is the point of the lawsuit?

The point of the lawsuit isn't so much to get money from the company as it is to try to nudge Rivian towards a course correction that increases revenue.

What is the delicate balance when a company goes public?

When a company goes public, ideally the goal should be delivering what customers want and having that translate into good returns for shareholders. It is obviously way more complicated than that especially when shareholder and customer interests are in direct conflict.

What happens when stockholders ask companies to sell crappy, undesirable products?

Big troubles happen to automotive companies when they start listening to their shareholders rather than their paying customers. Numerous years at GM were wasted trying to increase stock values all the while selling crappy, undesirable products. Not to mention how Boeing got into major trouble for trying to raise their stock price at the cost of lowering the quality of their aircraft.

What will be interesting in regards to Rivian?

What will be interesting is how the stock reacts to Rivian entering other key global EV markets.

What advice would you give a shareholder who has lost money on their investment in Rivian?

Just sell, take the loss on your taxes and move on if you feel that way....unless of course you are short selling and are just trying to help get the stock to fall with your pessimistic posts.

What is the bottom line?

The bottom line is that customers should always come first. Companies need to remember that they are in business to serve their customers, not just their shareholders. If a company can make its customers happy, then the shareholders will be taken care of as well.