Shareholders vs. Everybody Else

Doug Smith, in his post “Putting Shareholders First? Wrong!” at StrategyWorld makes a persuasive case that companies can’t put the interests of shareholder values above other considerations if they are to do more than engage in a Potemkin-village version of corporate social responsibility. He focuses on the tendency to give shareholder concerns primacy, rather than putting them in a larger context:

….we live in a world of markets, networks, organizations, friends and families in which our organizations are the new communities that determine the fate of our planet. Our primary ethical challenge can only be met when organizations reintegrate our legitimate concern for value with our equally legitimate concern for other values. Failing this, our most dominant organizations — for-profit enterprises — will continue putting value first and, thereby, continue propelling our global society toward social, environmental, political and economic disasters.

I’ll take the argument one step further: the popular corporate formula, “maximizing shareholder value” is actually detrimental to shareholders and corporations themselves. It has been construed to mean that companies have to please Wall Street analysts and financial journalists, particularly TV journalists. Short-termism has become so pervasive that it is almost seen as not worth discussing. It’s treated as a condition that companies must endure and learn to live with.

In this topsy-turvy world, it’s better to save to the point of disinvestment than risk funds on new hires or new programs. Think this is an exaggeration? The corporate sector was a net saver in 2004 and 2005, unprecedented in an economic expansion. Profits have been retained rather than being spent on hiring or wage increases, the norm in periods of growth. Stories of penny-wise, pound foolishness abound. For example, a consultant told me that a major telco had canceled a marketing campaign with an 11 month payback for one of their most profitable services because they wanted to be sure they made their quarterly numbers.

Public companies are taking direction from the shamans like securities analysts who say they know what’s best for investors. But the behavior that results seems to serve Wall Street’s interests better than that of the shareholders. The relationship has gone from symbiotic to parasitic.

So that’s why the hard-headed and fiscally responsible might want to consider the logic of corporate social responsibility. If nothing else, it is a way to counter the undue influence that Wall Street has on corporate decision-making.

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