Focusing on “Shareholder Value” is still the wrong thing to do

When a company focuses solely upon “Shareholder Value”, all kinds of bad things begin to happen.

All the passion for running the business, producing the product, chasing the vision… it’s all lost.

Instead, all focus goes to whatever saves a buck, and makes the company appear to be worth more. Back in September of last year, the Financial Times published an article by John C. Bogle titled, “Fund managers must break their silence”. In it, an important point is made: Fund managers are perpetuating a broken system whereby businesses are run solely for the return to shareholders, not for building a quality brand, or providing a superior service or product. Management is compensated solely based upon short-term, instead of long-term, goals.

Today, in APM’s Marketplace, there is an excellent article on this very thing. Here’s a link.

I would like to point out that in the interview with Lynn Stout, a professor at Cornell Law School, she is saying the same things (quoting the interview here):

In the golden age of large public corporations, Stout says, businesses were not merely in business to make a profit, but also to fulfill other goals like building great products and providing livelihoods for employees.

Short-term thinking is what causes most of the everyday problems we have when dealing with large corporate entities. And it goes into everything from never getting peanuts any more on an airline flight, to GE having to close the last high-quality light bulb factory in the world … just because the management has chosen to concentrate on making an extra buck. And look at the effect it’s had: all those people out of work, no more quality product. So really, what has been the gain?

The greater issues we now have are also due to this short-term thinking. I would bet that a significant chunk of our unemployment is due to management being driven by shareholders: cut jobs and quality service to save a few bucks; break up good, viable companies just for their break-up value, and the return it will bring to stockholders. No attention is paid to the devastation that will be wrought upon good, hard-working people who were meanwhile trusting to the corporation for their livelihood. Instead, they tell them, “It’s just business,” as they’re shown the door.

Oh that we would not choose to harden our hearts and go after short-term personal gain in the manner of Gordon Gekko (portrayed by Michael Douglas), of the movie Wall Street: “Greed is good.”

Those who manage, must to find a way to choose to make a little less monetary profit, yet pursue passion, vision, and most of all, integrity.

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