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Parable of the Talents and Managers Performance

April 15, 2013

The purpose of the company is to produce profit, which corresponds to a rational economic behavior. Without going into deep meanings of parable of the talents, as well as into many existing economic theories, let’s see how it can be Parable of the Talents (Matthew 25.14-30) a model of relationships between shareholders and managers of the company.
Parable of the Talents says that a man called his own bondmen and delivered to them his substance. He gave to each of them a number of talents according to his particular ability. Then, after a long time when he came back, he required them to show what they did with talents in his absence. Similarly, each manager receives certain assets (social capital, etc.) in administration, then he must show the profit earned by those assets. More assets he receives to manage, more profit he has to show he has made (25.20). He transformed the company he runs, making it more competitive and better able to produce profit in the next period.
On the other side, parable of the talents shows that people are not equal: each receives a number of talents, as his particular ability (25.15), but not equally. It would be a mistake to put a weak or incapable manager to lead a large and complex company.
When the time comes for payment, the manager who has produced more should receive more and vice versa (25.20, 29-30). Parable of the talents exclude the idea of loss, considering that minimum acceptable profit is getting at least bank interest, the equivalent growth zero (25.27). Who does not realize not even this minimum profit, should be discarded ‘into outer darkness’.
For the model to be operational performance indicators are needed to show the difference between managers. Indicators currently used are not relevant. For example, the indicator (cost per unit of income) can have the same value for a newspapers shop and a computers factory. A useful indicator is economic profitability (of the gross profit) = gross profit / total assets. This indicator measures the performance of the company’s gross assets before calculating tax. This is not influenced by profit taxation and should be growing.

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From → Theo-Systems

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