Jack Welch was wrong.
But at least he admitted it.
The notion of shareholder value, espoused by this former CEO/chairman, was first ponied up in the early 20th century by two accountants, expressing that corporate books should be prepared from the perspective of corporate proprietors. Milton Friedman furthered that idea in 1970, with his epic New York Times magazine headline: “The social responsibility of a business is to increase its profits.”
The rest is, simply, old news. Now many businesses are struggling to balance short- with long-termism, to weigh market demands with younger employees who no longer work solely for money but also for meaning and social value. That change will take some time.
But why not begin to introduce, in concert with Cornell Law professor Lynn Stout, the concept that shareholders are contractors? As are debtholders, suppliers, and employees. In her viewpoint, the only special considerations to shareholders are during times of takeovers and bankruptcies. In other events? Take a card, please, and call us in the a.m.
Seriously, the employee value strategy is one we’d embrace, 150 percent. Answer these questions: With little or zero motivated employees, how likely are positive returns? Given limited business understanding (and a tenuous link to the bottom line), could associates truly contribute to the best interests of any corporation? As possible individual investors, do company workers also belong to the “shareholder value” class?
In these days, there are a number of companies who still slavishly follow the “owner is king” philosophy. But not for long.