A growing chorus of business leaders is questioning the singular notion of maximizing shareholder value. In a recent Forbes article, Jack Welch and Marc Benioff, Chairman and CEO of Salesforce, both label it the “World’s Dumbest Idea”. Neither of these CEOs think shareholder value is unimportant, but without using the label they advocate a more Balanced Leadership™ approach. Marc Benoiff in an essay in the Huffington Post calls for maximizing stakeholder value while Jack Welch says, “Shareholder value is an outcome—not a strategy.”
One of the reasons our complex business simulations resonate so well when we teach business acumen is that we, too, teach shareholder value as an outcome and stakeholder complexity as a reality.
Of the roughly 1200 minutes in a typical 3 day Insight Experience Strategic Finance Acumen program, we spend about 15 talking explicitly about shareholder value—and those minutes are towards the end. The core of our time is spent exploring and embracing the ongoing tensions that drive valuation: long term vs short term horizons, internal vs external perspectives, and analytical vs interpersonal approaches. Participants find richness and realism in the complexity (and messiness) and multiple avenues to success. Our business simulation-based programs allow leaders to explore how to push a complicated amorphous set of objectives forward together – serving customers, employees, community members and yes, shareholders, at the same time.
Perhaps it is the notion of maximizing just one variable that seems dumb and frankly, unrealistic. While the financial market pressures on a CEO are huge, they are not the only consideration. Our most senior clients routinely request our most complex simulations. They want to test themselves to consider not just multiple markets, multiple geographies and differing employee needs, but also the demands of extended stakeholders, including:
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peer organizations competing for funds
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regulatory bodies changing standards
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new technological entrants meeting customer needs
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tight employment markets
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changing investor expectations
The real life discussions that these simulations stimulate underscore the point: leaders do not measure success with one variable nor for one stakeholder. They succeed by balancing approaches and lenses.
Roger Martin, former dean of the Rotman School may have said it best, “If [corporations] make it their purpose to maximize shareholder value, shareholders are likely to suffer because that cravenness turns off customers, employees, and the world in general. If they make it their purpose to serve customers brilliantly, be a fabulous place to work, and contribute meaningfully to the communities in which they operate, chances are their shareholders will be very happy.”
Our simulations prepare leaders for a broader definition of success in the messiness and complexity of the real world.
