Should Shareholder Value Be the Only Measuring Stick?

Fewer manufacturers are applying for the Baldrige Award

A recent article in The Washington Post, “Company Town’s Decline Reflects New Mantra: Shareholders First,” got me thinking. The article begins with a look at Endicott, New York, where, during the 1980s, 10,000 IBM workers kept the upstate town thriving. Today, after years of layoffs and jobs shipped overseas, about 700 employees are left.

On the other hand, investors in IBM’s shares have seen increasing gains.

“It used to be a given that the interests of corporations and communities such as Endicott were closely aligned,” writes Jia Lynn Yang. “But no more. Across the United States, as companies continue posting record profits, workers face high unemployment and stagnant wages.”

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Nothing New

Deming warned us about this almost 40 years ago. People need to re-read or read for the first time "Out of the Crisis" and his warning about the 7 deadly diseases.

Rich DeRoeck

Great question.

Great question, and I'm glad to see it in this forum; it's good to remember Deming and his "Deadly Diseases" often. My answer would be several pages long, so let me try for once to give the "short answer," recognizing that it's far from exhaustive. These are just a few of the consequences I've seen...

Singular focus on shareholder value has led companies to less profitability, due to playing the "earnings game." You have to meet Wall Street expectations to the penny, so it doesn't do to make even a penny more than expected (since that creates higher expectations next time; and God help you if you make too little. Companies divest themselves of slowly declining but still profitable "cash cow" business units (because growth is everything), with little understanding of how those losses will affect their systems.

As the Post article pointed out, companies move operations overseas to avoid regulatory issues and to cut their labor costs which is often touted as a great advantage, since we can all enjoy lower prices...but at what point do we become unable to buy even the cheap stuff, when no one has a job?

Shareholders are fickle, too...they will abandon you in a heartbeat if they don't like the dividends, or they see your stock starting to lose value, or if Greece goes on strike. It's often a good deal for shareholders if you liquidate.

Systems theory would suggest that putting customers first would make more sense...it would allow you to drive higher sales, higher profits, lower costs, higher quality, etc.; all those fundamentals that used to go into valuations, and raise your stock prices, and allow you to plan for the future (beyond next quarter).

Pennywise and pound foolish

It would seem to me a mauture (not necessarily old!), value oriented company would work to advance the prosperity of it's customers and suppliers to advance itself forward: based on a few quotes from notable people far more intelligent than me and a wandering mind and vocal opinions:

If everyone is moving forward together, then success takes care of itself.-- Henry Ford

Strive not to be a success, but rather to be of value.-- Albert Einstein

Maturity is achieved when a person postpones immediate pleasures for long-term values.-- Joshua L. Liebman

Read more at http://www.brainyquote.com/