Leadership / Performance: Are You Committed To Something Bigger Than Yourself?

Is There Anything Bigger Than The Maximisation Of Shareholder Value?

According to Roger Martin, the third most influential business thinker in the world according to Thinkers50, the shareholder value maximisation revolution was triggered in 1976 by Michael Jensen and William Meckling.  How? These economists published, what has turned out as the most cited article ever:  “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure”.

In this article, Jensen and Meckling argued that the professional managers (running businesses) were looking after their interests at the expense of the shareholders.  Thus began the  shareholder maximisation movement that has since then taken over the business world. And in so doing, all other stakeholders (customers, employees, suppliers, partners, society at large ..) have been viewed-treated as mere resources and/or means of creating-maximising shareholder value.

Are You Committed To Something Bigger Than Yourself? 

What does Michael Jensen say on the matter today?  Let’s listen:

“I have a bad rep on this kind of thing. Because people think that all I want companies to do is to maximise the value of the stock. First of all that is false, it’s not what I ever said. But I guarantee you if you are talking about maximising the right value, which is the total value of the firm, if that is all you’re doing you won’t maximise value! 

You’ve got to be committed, the company has to be, the firm has to be, committed to something bigger than itself. That will light people up. And cause them to be attracted to your organisation. Passionate about it! They’ll find something in what you’re committed to, the company is committed to, that satisfies them, lights them up and excites them. And that’s a HUGE missing component of what’s going on out there in the world ….”

– Michael C. Jensen talking on leadership at the Simon School (talk published on Mar 17, 2014)

If you are interested in listening to Michael Jensen and Werner Erhard share their ontological-phenomenological model of leadership at the Simon School then here is the associated YouTube video:

Shareholder value or customer delight? Choose

It doesn’t work if you fill up the tank with petrol when your car runs on diesel.  It doesn’t work to turn up at a nightclub and expect to get peace-quiet.  It doesn’t work to drive down the wrong side of the road at a busy time when there are lots of cars on the road and expect no problems.  It doesn’t work to turn up in your bikini for work or to turn up with your business suit to sunbathe on the beach.  And almost all of us get that.

So why is it that in the world of business we forget this.  Why is it that we still cling to stupid ideas, and practices, like what gets measured gets done. Rubbish. In the world of business what gets measured gets gamed. And if it isn’t being gamed now, then you can rest assured that someone is working on finding a way to game it especially if his/her bonus cheque depends on that measure.

Take the idea of best practice. When all the players in the industry go for best practice, the best practice is to do something totally different. Isn’t that what Jobs did?  And in the process he reinvented and created industries. So worshipping at the altar of best practice and benchmarking is a stupid practice especially if you are on of the followers, the laggards.

Then there is the stupid idea that you can generate genuine collaboration and teamwork within the organisation – social business – when the context the players operate from is one of competition: for resources, for recognition, for rewards.  In a context of competition what shows up is competition.  If you are stupid enough not to accept this and demand collaboration then you will get competition disguised as collaboration.

Which is the most stupid idea of all within the realm of business?  It is the one that was invented some 30 – 40 years ago.  It is the idea of shareholder value as being the sole purpose of a business and its management team. Why is it stupid?  Allow me to quote Roger Martin, Dean, Rotman School of Management:

Customer delight is a more powerful objective than shareholder value ….. if you take care of customers, shareholders will be drawn along for a very nice ride. The opposite is simply not true: if you try to take care of shareholders, customer’s don’t benefit, and ironically, shareholders don’t get very far either.

A lot of the issues that I see in the customer thing is that many of us are attempting to force it into the shareholder value game.  And it doesn’t fit.  The shareholder value game is the ‘one night stand’ game – get me laid this year!  Whereas the customer delight game is a longer-term game, an affair that keeps both parties interested in each other over the longer term.