Shareholder Value, Instant Gratification, and The Meaning of Life

Last week was über-busy on the consulting front so the daily posts didn't flow after Monday.

But being immersed in organizational "stuff" pays off in topical material. And the week didn't disappoint.

Lots of Management, Leadership Missing: Experienced Exec generated a really informative ongoing discussion about focus on shareholder value and the issues surrounding that focus. Check out the running commentary after reading this:-)

Shareholder Value: The definition has changed

Don't get the wrong idea: I'm definitely not advocating that there is something wrong with increasing shareholder value. I am, however, strongly suggesting that how value is created carries implications that are not necessarily consistent with the longer term "good."

Wally Bock weighed in with a comment that frames, perfectly, the crux of the situation. Here it is:

I believe that "shareholder value" has changed its meaning in my lifetime. It used to mean "value for the investor," the person or institution who will buy the stock because the company is well run and, as a result, who expects the stock price to rise in the future.

Today "shareholder value" means "short term shareholder value." That short term perspective has poisoned a lot of things. If you're looking to the long term, you know that your people, their knowledge and their relationships will be your primary driver of competitive advantage. If you're looking only at the next couple of months, you can justify getting rid of good people because the savings in salaries and benefits will fall straight to the bottom line.

Instant Gratification for The Few

If short-term shareholder value is the game, then the number of winners is limited.

Stocks become poker chips and the market becomes a big, round table of "shareholders" who are playing Texas Hold 'Em.  The game lasts until the payoff. Then, off to another table.

Who can win with this scenario? Certainly the shareholders (yes, I know they are still taking a risk; but like poker, it won't last long).

And  who in the organization stands to make a killing? Probably the top 10 or so people who the shareholders  rely on to deal an inside straight. The rest of the employees not only don't get part of the winning pot; they may not even be eligible to sit in and watch the game if things don't go well over the next fiscal quarter.

More Changing Definitions?

If you're reading this, then you're probably reading some wonderful weblogs that discuss employee engagement, careers, talent management, and leadership.

Yet each of those topics carries with it a sense of the longer term, maybe even a lifetime.

How can an organization ask for more "engagement" from employees when the employees know that the company is being managed on a quarterly basis?

Can you really have a career in the traditional sense? Or will life be a series of projects and job changes, many a response to downsizing which may be a response to increased shareholder value?

Give me a break on the War For Talent. Wars are fought to accomplish something over the long run. Be honest. It's really the Skirmish For Talent-As-Long-As-We-Want-To-Keep-It.

Leadership develops as a result of a series of experiences that brings about a mature sense of wisdom and discernment. Are we now seeing more  leadership with a small "l" and a definition that is consistent with Wally's definition of the new Shareholder Value?

The Meaning of Life

I've lived long enough to see business cycles and the economy rise and fall dramatically about a half dozen or so times. But I've not seen the kind of emphasis on short-term gratification that we are seeing now.

Delayed gratification is a sign of maturity. So is making decisions that will benefit--or at least not hurt--the community as a whole. (The opposite indicates selfishness and greed).

Today I spoke with a friend whose company is going into its fourth year of existence. It's goal has been 40% growth/year, which it has achieved. Next year it won't quite make the 40%. My friend is concerned that heads will roll. Really.

In all of this, the issue of Character looms large. The Character of Capitalism, with its promise of hope for the many, is threatened by the Ghost of Gordon Gecko's Greed.

This is a time for business leaders--and future business leaders--to closely examine the foundational meaning of life and their role in it.

To those whom much has been given, much is expected.

And not just for the next quarter.

Comments

[Karin H.]

Hi Steve

Straight from the heart! Fully agree with this attitude, statement and principle, so nothing really to add.

Only perhaps that you should tell your business friend to find his 40% growth in happy clients and employees. That's a growth that will keep its value (and the jobs on board)

Karin H. (Keep It Simple Sweetheart, specially in business)

[Steve Roesler]

Good morning (oops, afternoon) Karin

Well, it is from the heart. But not without prompting from experience and observation based in fact.

As for my friend, it's a fascinating situation in a way. His company is performing for its customers as well as ever. However, the customer base has been impacted by new regulations not of their choosing. As a result of that--and not the performance of the employees--the numbers will drop a bit. My friend's fear is that the numbers may be all that is needed to do something hasty.

Fortunately, he's the kind of guy who will remain joyous and positive about life regardless of the response of the organization to the circumstances. This could be an interesting and useful study--am going to follow it to see what we might learn from the company's response.

Hopefully they'll Keep It Simple and not panic. . .

[Karin H.]

Hi Steve

Miss read your story, thought your friend was the boss, oops.
So yes I now understand his worry - 'lack of influence'?

Hope things turn out well for him (and the company of course), would be a pity that change in regulations would stop the company changing its way to somehow benefit from those same changes. Every 'threat' is an opportunity too (somewhere).

Karin H.

[Steve Roesler]

That's a point well-taken, Karin.

I'll pass along the fact that he should be looking for the opportunity in the situation.

[Wally Bock]

There are several issues circling around this one. One is whether I, as an individual shareholder, have ownership in any meaningful sense.

Another issue is the corrosive pressure to continue to grow at rates that are historically unsustainable. Pressure to "make the numbers" often leads to making up the numbers as Warren Buffett has noted.

Another is what voice or vote stakeholders other than shareholders should have and those stakeholders might be. I can make a case for employees as stakeholders, but the idea of the "community" or the "environment" as stakeholders seems hard to sustain.

[robert edward cenek]

I more vividly recall the push for quarterly results occurring during the takeover craze of the mid-80's. I was with General Mills at the time, and our CEO, Bruce Atwater, would continually comment that underperformance was the best invitation for a dark knight (aka hostile takeover). It also seemed to be an era that ultimately became known as the "Me" decade. Our societal began to undergo fundamental changes in what was considered important. Most especially, greed and the "race to keep up with the Jones" became a paramount preoccupation for many.

My sense is that the quarterly race is here for sometime, primarily because corporate (and Wall Street) behavior is nothing more than a manifestation of societal behavior and mores - and I don't expect any major shifts anytime soon!!

More importantly, the issue now is a global issue. Emerging economies (including China, Russia and India) will get to experience what we have since 1929!!

robert edward cenek
Cenek Report
Uncommon Commentary on the World of Work
www.cenekreport.com

[Steve Roesler]

Wally,

Your mention of the Warren Buffet quote is in great part what prompted the post.

In a number of higher-level meetings over the past few years, I've seen a lot of distorted numbers created in order to make the numbers. Like anything else built on sand, what started off as a sand castle ended up as a puddle of mud.

The financial consequences did not, however, so much as touch those who perpetrated the offense; they rode off into the sunset with 7 figures. Those left behind paid the price.

[Steve Roesler]

Hi, Bob,

Indeed, the '80s seemed to be the starting point for all of this. And the fear of takeover still looms large in many boardrooms.

Your mention of corporate/Wall Street behavior reflecting societal mores prompts the chicken and egg question: Did the societal mores result from the corporate greed of the mid-'80s or vice versa?

Indeed, I don't see a change on the horizon, either. But, being a visual thinker, I'm getting a heck of a picture imagining those countries experiencing 1929.

Reality can definitely dampen a temporal ideal. . .

[Levy]

Hi Steve,

First time that I've visited your work. I agree that there is a change taking place in the definition of firms purpose but my take on it is there are more than two options in contention. There are lots of firms that expand the definition to include other stakeholders - for some that even means society as a whole: social responsibility. http://www.forbes.com/leadership/citizenship/2008/01/25/davos-corporate-responsibility-lead-cx_pm_0125notes.html

I suspect that the more conversations like this one make the practice of short-term thinking known the more stakeholders demand to be heard and their interest taken seriously - the harder it becomes to stay a short term thinker.

The real question for me is how are organizations developing their strategies to engage, learn and master the social media to have it contribute to the long and short term interest of the firm? These are some of the questions that I am writing about at http://buscreate.blogspot.com - stop by let me hear from you.

[Levy]

Hi Steve,

First time that I've visited your work. I agree that there is a change taking place in the definition of firms purpose but my take on it is there are more than two options in contention. There are lots of firms that expand the definition to include other stakeholders - for some that even means society as a whole: social responsibility. http://www.forbes.com/leadership/citizenship/2008/01/25/davos-corporate-responsibility-lead-cx_pm_0125notes.html

I suspect that the more conversations like this one make the practice of short-term thinking known the more stakeholders demand to be heard and their interest taken seriously - the harder it becomes to stay a short term thinker.

The real question for me is how are organizations developing their strategies to engage, learn and master the social media to have it contribute to the long and short term interest of the firm? These are some of the questions that I am writing about at http://buscreate.blogspot.com - stop by let me hear from you.

[Steve Roesler]

Hello, Levy,

Thanks for stopping in and offering up your URL as well; will certainly stop by.

Your take on the notion of "more conversations like this one bringing about a change in thinking" sounds right to me, and is probably the hoped-for impact of the medium.

See you over at your place shortly. . .