Why CEOs that aim maximise shareholder value ... almost certainly aren't
Stephen Bounds — Fri, 30/03/2012 - 22:36
‘Imagine a [football] coach holding a press conference on Wednesday to announce that he predicts a win by 9 points on Sunday, and that the current spread of 6 points is too low ... While it’s laughable to imagine coaches ... doing [this], CEOs are expected to do both of these things.’ – Roger Martin
‘[What if] a coach and his top assistants were hugely compensated, not on whether they won games, but rather by whether they [predicted] the point spread ... [and] the coach had to spend most of his time talking with analysts and sports writers about the prospects of the coming games and “managing” the point spread, instead of actually coaching the team ...
‘[What if] the whole league was rife with scandals of coaches “managing the score”, for instance, by deliberately losing games (“tanking”), players deliberately sacrificing points in order not to exceed the point spread (“point shaving”) ... everyone would realize that the “real game” of football had become utterly corrupted by the “expectations game” of gambling.’ – Steve Denning
‘Shareholder value is a result, not a strategy … your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal … Short-term profits should be allied with an increase in the long-term value of a company.’ – Jack Welch
‘A pervasive emphasis on the expectations market has reduced shareholder value, created misplaced and ill-advised incentives ... and introduced parasitic market players.’ – Roger Martin
(Via Umair Haque, excerpts and quotes from a fantastic article from Steve Denning to clearly lays out the pathological results of compensating CEOs for stock prices instead of sustainable gains.)
Our expertise in complex systems analysis, combined with a deep understanding of technology and modern, agile management and leadership techniques makes knowquestion uniquely positioned to find strategic solutions to your tough problems. Contact us today.