This morning I came across a journal article that explored the implications of CEO compensation on what it described as their primary duty: creating shareholder returns. I chaffed.
Shareholder returns are not ends. They aren’t a business’s goal. If shareholder returns are ends, then something else is necessarily the means. The implication of this idea is what has killed the passion and driven the soul from too many businesses.
I wish I were wrong. But if I were, there wouldn’t be anywhere near the focus there is on short term, quarterly results. Or articles on creating shareholder returns.
Instead of trying to create value for employees and customers, some in business focus their efforts on creating value for their shareholders. Decisions are made to serve the shareholders, and when short-term financial results come into conflict with what clients and employees need to succeed, the shareholders win. Results are measured by the stock price alone.
It’s backwards and short-sighted.
Employees, Customers, and then Shareholders
The real path to shareholder returns is found in creating value for customers. When enough value is created for customers, shareholders benefit as a matter of course. But this is only the beginning of getting the order right; customers are only one of the ends.
If customers are to be served in way that create value, and the revenue, profit, and growth that accompanies it, then employees are what produces that outcome. They are both the means and an end!
The right order isn’t to put shareholders first with customers and employees as the means to create returns. The right order is to put employees and customers first, and by doing so, to generate greater results for all stakeholders.
For anyone concerned about creating shareholder returns, they would do well to reverse the conventional wisdom on priorities. Start with ensuring that your employees are well supported, cared for, developed, and nurtured. These are the only assets you have for producing results for your customers or clients. If you want employees that care, you care about them. By having great employees creating value for your customers and clients, you get the revenue, the profit, and the growth that you want for your shareholders.
Why is their so much emphasis on stakeholder returns and short-term results? What is the result on longer-term goals and initiatives?
What is the purpose of a business?
What are the risks of putting shareholders before customers? Customers before employees?
If you really want shareholder returns, what is the surest path to achieving them?