Friends and colleagues have heard me argue for years that “enhance shareholder value” should not be a part of a company’s mission statement or any CEO speech. My position is that if you provide an innovative and differentiated product or service the market needs at a fair price, shareholder value will take care of itself. It’s a fait accompli.
To the detriment of customers, employees and American businesses, CEOs must ensure that public companies must perform to absurd earnings expectations of stockholders, institutional and professional investors, and the good old boys and girls club on the board of directors. These people aren’t looking out for you or me, or the companies they invest in or control. It’s all about squeezing as much money as possible out of the organization every 90 days.
There is only one valid definition of a business purpose: to create a customer. – Peter Drucker
A very important article on the matter was recently published in Forbes magazine and I implore you to read it. Our current recession is a direct result of the theories, accounting rules and street expectations governing American corporations. From the article:
“A pervasive emphasis on the expectations market,” writes (Roger) Martin, “has reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking, Capital markets—and the whole of the American capitalist system—hang in the balance.”
Read the article. Capitalism is at risk. Our way of life is threatened. Changes must come soon.
Brian,
ReplyDeleteFinally had a chance to read the article - and I'm glad you mentioned it.
My oh-so-long-ago MBA coursework included a couple of classes on basic finance. I do recall getting the "maximize shareholder value" drilled into me from the outset, and I'll admit not having a clue that the concept didn't come into being until 1976.
Here's a hypothesis: the behavior is being driven by the shift from people having a company pension to 401k-based retirement savings. When you're retiree, and seeing markets emerge and disappear seemingly overnight, anything other than a steady, "just hit your numbers" approach is going to cause serious concern with anyone on a fixed income.
The Forbes article cites several examples of firms who thumb their noses at managing to the numbers. I agree with most of the proposed reforms in the article.