The Myth of Shareholder Value

In the 1990s Stern Stewart developed a management method called Economic Value Added.   This, along with new practices in Executive Pay, heralded the era of Shareholder Value. While the idea of Shareholder Value holds merit, its practice has been a disaster. In the name of Shareholder Value, untold companies have inflicted damage upon themselves.  The error, executives confused mathematical relationship with cause and effect.  They took actions to cut near-term costs and increase near-term revenues that unknowingly eliminated the muscle and bone needed to excel in the long term. Typically the muscle and bone included the know-how necessary to innovate and execute with excellence and ultimately to deliver great performance.

New research in behavioral economics, organization science, psychology, and neuroscience is revealing the causal effect of engaged employees and stakeholders for delivering business results (and increasing shareholder value).  Traditional implementation of the shareholder concept has left us with organizations where, according to Gallup, 70% of employees are disengaged or actively disengaged.  And this costs businesses half a trillion dollars per year.

We now know how to lead and manage organizations to truly deliver great performance.   Great performance serves shareholders and in synergy, it also serves stakeholders including customers, employees, business partners, and society at large. Unfortunately, the know-how to deliver great performance is not typical management practice. Such know-how requires a focus on human excellence and potent cooperatoin.  And just like in sports, human excellence is developed from the inside out.  

Taking Action: Commit your organization to becoming a learning organization, focused on human excellence and full engagement aimed at great performance.  Have each person commit to their own development plan and work to improve at least one high-priority behavior or skill at a time.  

Posted by David Sherman

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