“The Dumbest Idea In The World: Maximizing Shareholder Value” says Forbes contributor Steve Denning, author of “The Leader's Guide to Radical Management: Reinventing the Workplace for the 21st Century”
I completely agree with that statement. In fact in this article, he reviews Roger Martin’s book of “Fixing the Game” in which Martin compares the notion of maximizing shareholder value to that of maximizing betters profits on NFL football games. He says that if football coaches were asked to behave like CEO’s they would be rigging games, making deals with other teams, and managing points spreads rather than trying to win games. Well, in France, in the 90’s one such scandal happened when the French OM Soccer team was in the hands of Bernard Tapie, a French star CEO renowned for his ability to turn failing companies around and make them highly profitable. I mention this because of the CEO analogy used by Martin brings it to mind. Bending rules seems commonplace in the business world and just as in sports, the resulting scandals are widely publicized and quickly forgotten.
1. Expressing The Problem
While in most businesses today, control of the organization is ultimately with the shareholders’ representatives in a Board of Directors. The company has a founding contract, which usually states its domain of activity, the shareholder structure and the purpose of the company. In this document, purpose of the organization is legally defined as generating financial returns for these shareholders. Furthermore, the market has developed many different business models, under different business environments and has generated standard levels of economic performance.
As a result, the directors and managers will steer the organization to reach or exceed these standard economic performance standards. This generates a non-sustainable race for profits, exclusive to all other considerations.
As it is non-sustainable, this approach works well for a limited time. In recent years we’ve seen the limits of this economic race: environmental degradation or pollution, accounting scandals, fraud, large-scale externalization of technical or industrial knowhow and social distress movements.
Something is wrong with our values.
2. Expanding the field.
Values are at the core of Steve Denning’s radical management philosophy. The approach talks about shift rather than change in the following way:
- "A shift in goal from making money for shareholders to delighting customers through continuous innovation.
- A shift in the role of managers from controlling individuals to enabling self-organizing teams.
- A shift in the way work is coordinated from bureaucracy to dynamic linking.
- A shift in values from a preoccupation with efficiency to a broader set of values that will foster continuous innovation.
- A shift in communications from top-down commands to horizontal communications.”
These are very sound principles, and making these shifts requires a profound change in values. The first of which, is realizing that we cannot, as a society, limit companies to a role of creating shareholder value. We cannot link the value of a company to the profits, sales, growth, or any other economic indicator. Worth and Value aren’t “natural” economical concepts, they are profoundly social and human concepts.
3. Going Beyond
One must really sit down and think the concepts of Value, Appreciation and Worth out. One should feel them, understand what is linked to these concepts (power, fear, frustration, fear of loss) and understand at the deepest level what it means to create value. For whom are we doing it?
Today, the notion of value is more than ever linked to the human spirit. It is more than ever linked to sustainability, to well being, to thriving individuals, to social cooperation and balance.
We have to go back to why does a company exist in the first place? Who absolutely has to benefit from it for it to grow and prosper, today, tomorrow and for as long as humans are around?
Our software for determining why we do things needs a serious up-grade.
Our best people tell us by their success why they where entrepreneurs in the first place. The digital generation wiz-kids have wanted to provide services and products to people because they knew it would make their life better. Does it all stop when the founder dies?
We have to rebuild company visions, with the betterment of man in mind. To be really great, we have to realize that company have employees, clients, providers and investors, and that all four groups have to benefit from the fantastic value generating machine that we call a business. Our human values are worth everything when expressed in a creative way.