Finally, Kontes provides readers with a road map to implementing his suggestions. Presents an argument for a more holistic approach to delivering shareholder valueDefines and then elaborates a new approach to strategic managementWritten by a true thought leader in the field, regularly featured in publications such as "Fortune" and "BusinessWeek" Never before have business leaders experienced the kind of tough decisions they are being forced to make as the economy undergoes incredibly rapid shifts. The common sense guide to successful leadership, "The CEO, Strategy, and Shareholder Value" delivers exactly the kind of solid, dynamic advice that will keep your organization moving on an upward path.
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Showing Some 30 million workers in the U. It is hard to see any possible justification for the proliferation of such agreements, except the predatory self-interest of the firms requiring them.
Why Shareholder Value Should Not Be the Only Goal of Public Companies
The overall result is a discouraged workforce. In a marketplace where success depends on rapid innovation, a disengaged workforce is a significant handicap. The impact of shareholder value thinking has been particularly visible in the financial sector, which has faced the challenge of making profits in a context of low interest rates and tepid economic growth. Financial engineering has led to excessive growth of the financial sector , which is now roughly three times larger than it was a few decades ago.
Although this growth benefits those who work on Wall Street, from the point of view of the economy, it also results in a misallocation of financial and human resources. People and money that could have been deployed in activities benefiting real people, are instead deployed in socially unproductive activities that are no more useful than gambling in Las Vegas. The negative impact on the economy is startlingly large.
A study by the International Monetary Fund quantifies the direct cost to U. In other words, if the financial sector were the proper size, the U. In effect, the excessive financialization of the U.
The first step is to acknowledge that shareholder value theory is financially, economically, socially and morally wrong. Some CEOs have already spoken out.
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- Making the Choices That Maximize Company Performance.
- Total Shareholder Returns;
The idea that public firms should have professional managers who would balance the claims of different stakeholders, taking into account public policy, turned out to be impractical. The difficulty of balancing the claims of employees, customers, the firm, and society on a continuing basis is what precipitated shareholder value thinking in the first place.
However even if exceptional corporate leadership is able to achieve the balancing, what happens throughout the organization in decision-making on a daily basis? Even if exceptional leadership at the top is able to pull it off, what happens down the line, in decision-making at middle and lower levels?
This measure of business performance is the best indicator of corporate success.
Are they also going to be balancing the long-term claims of competing stakeholders on a daily basis? Here, we are back in the fog of war between different stakeholder interests. The chances of success are minimal. The third step is to recognize, as Jack Welch pointed out in , that shareholder value is a result, not a goal. Once shareholder value becomes the goal, it leads to actions that undermine the accomplishment of the goal.
Who can blame them for pushing the guiding metaphor of their profession to its logical conclusion? If self-interest in making money is a virtue, not a vice, why not go for it, flat out, hell for leather? Let businessmen single-mindedly pursue self-interest, and everyone will be better off! Sadly, the academic theorists missed a key aspect of the fabric of reality: the Principle of Obliquity.
As pointed out by John Kay in his book, Obliquity Penguin, , in complex social situations, objectives are often best accomplished obliquely, not directly. Central planning is not the most effective way to run an economy. Frontal assault is rarely the best military strategy.
The direct pursuit of happiness is not the best way to achieve happiness. The history of business over recent decades has come to resemble a concerted effort to ignore complexity and use linear thinking to discover direct shortcuts to success. Friedman, Meckling and Jensen embraced the embryonic psychology of mainstream economics and missed counter-intuitive peculiarities of the human mind and heart. They assumed that the best way to get to a complex goal is to head for it directly. It is not. Complex settings are messy and operate in a non-linear fashion.
The actions and intentions of others, and their reactions to our actions and intentions, are key components that we have to take into account in what we plan and do. The articulation or communication of a direct goal can lead to behaviors that prevent the achievement of that goal. Where explicit articulation of a goal will result in a complex environment pushing back in the opposite direction, an oblique goal will generally be more effective. Making money is the result, not the goal of a successful business. It was always thus, although the shift in power in the marketplace from seller to buyer has given fresh relevance to this truth.
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The purpose of a firm, and the best way to make money, and indeed the only sustainable way, is to create customers. Shortcuts to prosperity by making money out of money are no more conducive to prosperity than gambling.
Why Shareholder Value Should Not Be the Only Goal of Public Companies | Time
Sustainable prosperity comes from generating real goods and services for real human beings, not from arrangements to generate arbitrage from volatility. Bottom Menu Languages English. New Items List by Group. Sign in to e-Library portal. How Do I? User Guide. Page content. You are here : Catalogue Display. The CEO, strategy, and shareholder value : making the choices that maximize company performance.
Bookmark Catalogue Record Search Author in Wikipedia. Browse Shelf Catalogue Record Item Information Catalogue Record Catalogue Information Catalogue Record K6 Author s Kontes, Peter W. Physical Details xviii, p.