Tuesday, September 11, 2012

What’s More Important Than Shareholder Value?





For decades, CEOs and boards have had an incessant focus on maximizing shareholder value. However, in a number of recent articles, many pundits have articulated the undermining effect of increasing shareholder value. They now say that it sacrifices long-term value creation for customers. While there are an exhausting number of eloquent discussions about the disasters of focusing on shareholders, no one has clearly stated what CEOs’ primary focus should be. 

As the Chairman of an organization that brings together former CEOs of Fortunes 1000s with current CEOs of midsize companies, I am in a position to engage both sides of the table – the younger and more mature. One of the consistent comments I hear from former CEOs is that the number one job of a CEO is to
create a successful culture. They say that focusing on shareholders’ value is a short-term solution that could make the business irrelevant to the marketplace in the long-term. With that said, I agree that very successful executives are cognizant of creating culture. Because of this awareness, they meet the needs of customers and take good care of employees. Corporations like P&G say customers first, employees second and shareholders last. 

If I mention Steve Jobs as another great example, most people scoff and say ‘we are sick of him. He was a command and control leader who forced his will on people. He did not take baths and he dropped acid.’ Yet, he created a thriving culture that drives innovation in a way that goes unmatched. What did he do that others didn’t despite his shortcomings?

If you personally attack Jobs, you entirely miss what he did well. In fact, he is not alone when you talk about CEOs who were not nice guys. Walt Disney, Henry Ford and Howard Hughes were not touchy feely guys. Except, those gentlemen, along with Steve Jobs, created successful cultures that have transcended generations. 

The real question is: in the face of Jobs not being a nice guy and supposedly led by command and control, what exists in Apple that allows for a great culture? It didn’t happen by itself.

Too often, people believe that creating culture is a how to. People have formulas for creating culture. They start with vision, values and reward systems. Yet, many companies follow this formula and still achieve average performance. Furthermore, when you ask the employees what the vision and values are, only a small percentage can answer.

I say there is something underneath a successful culture that allows for it to exist. It serves like an operating system in your computer; allowing various programs to function alone or separately.

Most people would want to know the exact answer to what allows for a successful culture. At the same time, it is the inquiry and the thought process of peeling down the layers like an onion to find the answer. The peeling of layers gives greater insight into discovering what allows for a great culture.

Instead of searching for the silver bullet, listen to the conversations in your company and examine the organizational structures. Ask yourself if the existing conversations and structures create and support a successful culture. If the answer is yes, can you enhance it? If no, what’s missing?

Since maximizing shareholder value has become a distraction from building a thriving, innovative enterprise, it will become exceedingly more important to understand what allows for a successful culture. While it may seem easy to come up with an explanation, you may find that explanations never give you the ability to reproduce greatness of any sort.

If you truly want to discover what makes successful cultures, you will have to suspend your beliefs and kill the sacred cows to find the most effective means of engaging your people. Without doing so, you will experience slight improvements to what does exist, not the kind of greatness seen at Apple. 

Perhaps Steve Jobs mastered the ability to suspend beliefs and focus on what was possible. If he were able to get his top executives to do the same, it would allow them to innovate in areas that were counterintuitive to the rest of the world.

What beliefs are you willing to suspend, such that your people were empowered to contribute to you and others and a successful culture shows up in your business?

What do you think? I’m open to ideas. Or if you want to write me about a specific topic, let me know what interests you. 




2 comments:

  1. I believe that the sun source of continuing company success is found in the relationship with theone's customers.

    The customer has no inherent obligation to the supplier of goods and services; any relationship is derived from the extent to which the supplier can meet the customer's needs better that any alternative sources.

    We cannot expect to keep our customers for long if we do not achieve the position with them of 'more, better, cheaper, facter' from their perspective.

    Shareholder return is a result of achieving the above goals, and unless you focus on those goals, generating sustainable shareholder returns will prove elusive.

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    1. Well said, Bob. Continuously exceeding customer expectations is critical. If you don't, your competitors will.

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