Why “Shareholder Value” Shouldn’t Be Our Only Value

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Most of us know that things are still pretty messed up, economically speaking. If we’re honest, really messed up. But is it really that hard to see why? The same thinking that got us into this global economic quagmire continues steering the worldwide ship of commerce. Even after the near total economic collapse of 2008 and the warranted assurances that things must and will change, it seems we’re right back where we started. Does the reckless, recent multi-billion dollar loss by Chase and the widening Barclays (Libor) scandal sound familiar to anyone?

The fact is we remain unwilling to let go of some of our most antiquated thinking about business and the best way to lead it. We’re addicted to a certain belief about the why and wherefore of our version of capitalism. We’re afraid that if we challenge that one belief, the entire capitalist edifice will come crashing down – though it seems to be crumbling all by itself at the moment. The sad reality is we’ve become economic fundamentalists, driven by our attachment to a single piece of fiscal dogma – the slang, not-so-tongue in cheek version of which is “greed is good;” the more polished, socially acceptable version is “shareholder value is the only value,” or “profit alone is the business rationale.”

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Well, of course, you say, we’re talking about business, after all. And business is, well, business – meaning commerce at its very core is nothing if it is not about turning a profit, making money.

And yes, that singular piece of economic religiosity is the very thing I am saying is wrong. Because it’s far too narrow, far too simplistic for the hyper-networked, transparent, rights-focused world in which we now live. That is our problem: our unquestioning attachment to Milton Friedman’s foundational assumption that shareholder value is a corporation’s only (or at least primary) responsibility. It no longer works. (I realize that for the economically indoctrinated, and that includes most of us, this assertion amounts to a kind of heresy. But all great truths, we are told, begin as heresies.)

So, if that is the problem, what is the answer? First of all, the answer doesn’t deny the need to make a profit; it merely repositions it, seeing profit as a natural result and as a measurement for how well (or not) the leaders of the business are doing. Of course, we need to make a profit,” the answer tells us, but, unlike the Friedman school of thought, it declares, “profit is not the be all and end all of business. It’s the natural by-product of business done well.” This new thinking includes but transcends the singular profit motive and puts the business leader’s emphasis on a larger domain of, first, human development and, second, the achievement of excellence.

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First, then, it understands that business is a human enterprise, however else we may want to spin it. It recognizes that the world today (and probably forever hereafter) is run by business, whether we like that fact or not. And so it understands that business’s responsibility is to be in the business of shaping the experience that we all have in the world of work, because that is where we spend the majority of our waking hours – in the cultural world of business with our professional colleagues rather than in our homes with our loved ones. Thus, business and the leadership of business must be about the development of people (tough-minded, rigorous, and systematic), leaders and followers, as it goes about making, marketing, and selling its widgets.

Second, it assumes that anything less than the pursuit and achievement of excellence is unworthy of our commitment and hard work. “The successful organization of the twenty first century,” it says, “must be fiercely committed to the accomplishment of excellence up and down the organization. Anything less is a waste of time.” That means excellence in how the organization is structured, in how leaders are groomed and developed, in how products are developed and sold, in how people are treated, in how new markets are established, in how customers are regarded, and in the results (top and bottom line) that all of this produces. Excellence becomes an end in and of itself.

These two business and leadership principles — the thoroughgoing development of people and the achievement of excellence — require one another. The measurement of the leader’s success in growing and developing of people is the excellence that is produced. And the natural byproduct of this excellence (rather than its focus) is profit.

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Sounds too good to be true? Really? Ever hear of a little company called Southwest Airlines? Far more than simply a cost-cutting airline (many of which have come and gone over the years), Southwest has been people-centric and excellence-committed from the very beginning. As the clueless Uniteds and Americans of the airline industry have continued to flail about mired in their old school economic thinking, Southwest has soared, year-in and year-out, leaving their competition in the dust (or the clouds, as it were). As their competitions’ myopic addiction to the dogma of old continues they will, at best, survive. Unlike Southwest, they will not thrive. Not in this radically changed world of ours.

The only real question for the rest of us is Will we awaken from our doctrine-induced slumber in time to save democratic capitalism – the backbone of the Western world’s never-before-seen success?

Cleve W. Stevens, Ph.D., a social ethicist and leadership development consultant, is president of Los Angeles-based Owl Sight Intentions. He is author of the newly released book, THE BEST IN US:  People, Profit and the Remaking of Modern Leadership (Beaufort Books).

11 comments
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ATP33Toronto
ATP33Toronto

This article starts well amp; then doesn't say anything. It could have

said so much more. Where is the rest of it? On the editing room floor? 

It doesn't consider several pieces of the equation. Consider: The

Economics of Happiness; Thrive (the movie); Social Responsibility; Fair

Trade; 2012; the very planet on which business is done. *That's* how

we'll measure success, cause we'll still be here, alive amp; thriving amp; succeeding in all aspects of our society amp; communities the world over.

 

Guest
Guest

 This article starts well amp; then doesn't say anything. It could have

said so much more. Where is the rest of it? On the editing room floor? 

It doesn't consider several pieces of the equation. Consider: The

Economics of Happiness; Thrive (the movie); Social Responsibility; Fair

Trade; 2012; the very planet on which business is done. *That's* how

we'll measure success, cause we'll still be here, alive amp; thriving amp; succeeding in all aspects of our society amp; communities the world over.

Guest
Guest

 This article starts well amp; then doesn't say anything. It could have

said so much more. Where is the rest of it? On the editing room floor? 

It doesn't consider several pieces of the equation. Consider: The

Economics of Happiness; Thrive (the movie); Social Responsibility; Fair

Trade; 2012; the very planet on which business is done. *That's* how

we'll measure success, cause we'll still be here, alive amp; thriving amp; succeeding in all aspects of our society amp; communities the world over.

Guest
Guest

This article starts well amp; then doesn't say anything. It could have said so much more. Where is the rest of it? On the editing room floor?  It doesn't consider several pieces of the equation. Consider: The Economics of Happiness; Thrive (the movie); Social Responsibility; Fair Trade; 2012; the very planet on which business is done. *That's* how we'll measure success, cause we'll still be here, alive amp; thriving amp; succeeding in all aspects of our society amp; communities the world over.

bcfred
bcfred

This entire article boils down to short-term versus long-term thinking.  Treating people well so you attract the best talent, being good corporate citizens, etc. all build long-term value.  This revelation is nothing new, it's been core management theory for generations. 

Oh, and Southwest?  It gains massive operating flexibility from being the only large non-union carrier in the U.S. and keeping its headquarters in right-to-work Texas.  It also operates only one type of plane (easier for maintenance and repair purposes, flight crews, etc.), doesn't rely on a delay-causing hub-and-spoke system and flies primarily into smaller airports (e.g. Love Field instead of DFW in Dallas, Hobby instead of Intercontinental in Houston).  These are solid strategy decisions that have little to do with anything but maximizing profit.

smooth edward
smooth edward

It may have been core management theory for generations but it sure hasn't been practiced.

Gary McCray
Gary McCray

The fault lies in our entire concept of what makes for a thriving economy in the United States.

Basically it is a no hold barred, winner takes all, free for all.

Win at all costs, cheating is fine if you can get away with it and nothing else matters.

Consume or destroy the competition and exploit any possible avenue for maximum capital return.

The people of the United States don't matter, the government is to be controlled for maximum gain and worst of all, tomorrow doesn't matter at all.

We cannot solve these problems.

The Nation must fall and civilization itself will virtually collapse before we even figure out we did something wrong.

That is our tomorrow!

Paul Todd
Paul Todd

I agree with and celebrate everything Dr. Stevens says here, except the idea that this represents "new thinking." Read Peter Drucker's "The Practice of Management" (1954!) followed by "The Puritan Gift" by Hopper and Hopper (2009) for a good foundation in wealth creation and the role of corporations.

We are not discovering new knowledge, but rediscovering that which has been lost by our own hand. Our ignorance has led us from one bubble to the next, all the while exporting our wealth for short term profit in the name of shareholder value. Let there be light!