Feb 24, 2012
According to Fortune, CEOs are getting talkative these days—about politics, about high unemployment, about same-sex marriage. Of course, shareholders don’t hire them to spout off and cause trouble.
And shareholders come first. Or is it that they came first?
Fortune suggests that thoughts about maximizing shareholder value could be changing. “Perhaps some CEOs have begun to question the prioritization of shareholder value over the company’s defining values,” the magazine avers.
Starbucks, it notes, already seems to be going in that direction. “Delivering long-term shareholder value is essential, but companies can and should hold themselves to higher standards of achievement,” the coffee purveyor told Fortune.
Peter Drucker thought a lot about this issue. In Management Challenges For the 21st Century, he noted that in the 1920s “the prevailing theorem, however fuzzy, held that business should be run for a balance of interests—customers, employees, shareholders and so on.” That created too little accountability, however, and things changed. By the late 20th century, there had been a “dramatic shift to the predominance of the ‘shareholder interest.’”
But this, Drucker said, was no good, either. In fact, it might even be worse.
It invited short-term thinking (a subject we’ve explored before). And, as Drucker warned in Post-Capitalist Society, it could mean “damaging, if not destroying, the wealth-producing capacity of the business.” Maximizing shareholder value, he added, could also alienate the company’s most vital employees, its knowledge workers, who wouldn’t be “motivated to work to make a speculator rich.”
The companies that did it right were to be found in Germany and Japan, Drucker believed. “They do not attempt to maximize shareholder value or the short-term interest of any one of the enterprise’s ‘stakeholders,’” Drucker wrote in Managing for the Future. “Rather, they maximize the wealth-producing capacity of the enterprise.” [Italics Drucker’s]
Drucker continued: “It is this objective that integrates short-term and long-term results and that ties the operational dimensions of business performance—market standing, innovation, productivity and people and their development—with financial needs and financial results. It is also this objective on which all constituencies depend for the satisfaction of their expectations and objectives, whether shareholders, customers or employees.”
What do you think: Should shareholders always come first, or is another model preferable? Why?