Saturday, July 7, 2018

The Long View: Why “Maximizing Shareholder Value” Is On Its Way Out

The Long View: Why “Maximizing Shareholder Value” Is On Its Way Out

    • In 1986, Peter Drucker warned of a severe threat to our “long-term economic future.”
      “Corporate managements,” he wrote, “are being pushed into subordinating everything (even such long-range considerations as a company’s market standing, its technology, indeed its basic wealth-producing capacity) to immediate earnings and next week’s stock price.”
      In the decades since Drucker sounded that alarm, the problem of short-termism hasn’t abated much, if at all. A recent global survey by the Canada Pension Plan Investment Board and McKinsey & Co. found that 63% of business leaders indicated that the pressure on their top executives to demonstrate strong short-term financial performance has increased in the past five years. Meanwhile, 55% of chief financial officers said that they would pass up an attractive capital investment project today if the investment led them to miss their quarterly earnings target, even by a little bit.
      Still, amid this sorry state, one thing would surely gladden Drucker: The backlash against short-term corporate thinking is becoming more powerful all the time, thanks to the efforts of a broad range of individuals and organizations, including the Aspen InstituteConscious Capitalism, the Stoos Network, the Management Innovation eXchange, the CFA Institute, the Purpose of the Corporation Project, the Sustainability Accounting Standards Board and many more.
      Last week, 14 people who are passionate about making long-term thinking the new normal of business met in Claremont, Calif., at the Drucker Institute, the social enterprise that I run. Many in the room expressed that we’re getting closer to altering how capitalism operates. “The big challenge,” said Bill Densmore, coordinator of the Rules Change Project and one of the participants, “is how do we get to that inflection point quickly?”
      Our agenda was threefold: to learn what each other is doing to counter corporate myopia, to see where we might be able to form natural alliances and support each other’s work, and to determine whether our various actions might somehow add up into something much larger. It was this last notion—of sparking a social movement—that seemed to prompt the most excitement.
      To help us better understand how movements are born, we brought in Marshall Ganz, a senior lecturer at Harvard’s Kennedy School of Government, who served as a key aide to Cesar Chavez at the United Farm Workers and is widely credited with forging the grassroots strategy that catapulted Barack Obama into the White House. Ganz urged us to begin by determining who cares the most about the perverse effects of corporate short-termism and to then zero in on the “dissonance” they feel—that is, points of tension resolvable only through action.
      “Sometimes what’s required is to ratchet up the dissonance,” Ganz advised. As we continued our discussion, we identified at least two groups that are likely to be receptive to what Ganz described.
      First, there are graduate students, many of whom are passionate about changing the world—and not just getting rich. The trouble is that all too many business and law schools undermine this spirit by teaching traditional classes that reinforce a short-term mindset. As Cornell law professor Lynn Stout, one of those at the Claremont gathering, has made abundantly clear, by the time these students hit the job market, they’ve come to falsely believe that the primary purpose of the corporation is to “maximize shareholder value.”
      One way to ratchet up the dissonance, then, is to end-run the system. In fact, some of those in Claremont said they would try to launch a series of massive open online courses or other alternative training that will instill more of a long-term outlook.
      The second group where there’s dissonance can actually be found in the executive suite. Yeah, sure, some people will always be greedy and manipulate short-term financial results because it’s in their narrow self-interest. But to be cynical is to miss a major opportunity: Most people go into business because they’re eager to offer a product or service that provides customers—and, by extension, society as a whole—something of value. They hate the pressure, from Wall Street and elsewhere, to focus on short-term financial metrics.
      With this in mind, several of us pledged to step up our attempts to devise unconventional, but highly credible, measures that give a more holistic picture of what a healthy company looks like—how such an enterprise is not only profitable, but also fosters customer satisfaction, treats its employees well, continually innovates and plans effectively for the future.
      At the same time, we vowed to call even more attention to those corporations—like Unilever, for example—that are doing the right things. “People need to see that they’re not alone,” said the University of Toronto’s Roger Martin, a leading voice for long-termism who also took part in the event.
      Our nascent movement—if I may be so bold to call it that—faces many hurdles. The damage from short-term thinking can seem distant and is difficult for the average person to discern (making our movement more akin to environmentalism than Civil Rights). Building a company to be sustainable, and assessing its progress toward that end, is complicated; “maximizing shareholder value” is, by contrast, seductive in its simplicity.
      Despite all of this, I am confident that everyone in Claremont—and many, many others—will persevere. We are, after all, in it for the long-term.

Tuesday, July 3, 2018



written by 

Emma Seppälä, Ph.D.

   March 22, 2018
(This article was first published in Harvard Business Review)

How often have you had the following conversation at work?
How are you?
Good. You?
It is a script we stick to even if we are dying inside.
It’s hard to build real connections with your colleagues if you never get beyond superficial chit-chat. And yet people who have a “best friend at work” are not only more likely to be happier and healthier, they are also seven times as likely to be engaged in their job. What’s more, employees who report having friends at work have higher levels of productivity, retention, and job satisfaction than those who don’t.
Many companies have tried to support office bonds through perks like ping-pong tables, free lunches, or corporate retreats, but the reality is that most of us don’t have close friends at work. In a survey by Pew and the American Life Project, just 12% of respondents’ closest ties were with people from their professional life. If we expand this to people who were significant in the respondent’s life, the results aren’t wildly different. Only 19% of the people surveyed had a significant relationship with a workmate.
This phenomenon seems to be particularly American. Going on a vacation with a coworker is virtually unimaginable in America — less than 6% of workers have taken their relationship with colleagues to this level. Research by Stanford professor Hazel Markus, author of Clash: How to Thrive in a Multicultural World, suggests that this fact is probably due to our cultural propensity towards fierce independence — rather than the interdependence characteristic of many other cultures. More than one in four Poles and close to half of Indians have vacationed with a coworker. Is there something that American workers are missing?
Research shows that, after food and shelter, belonging is a fundamental human need. Given that we spend between 8 and 9 hours of our day at work (not including commute time), we have significantly less time to fulfill our social needs outside of work. When we’re not working, we’re either dealing with family, errands, or trying to grab some rest when we can. The workplace, where we spend such a large portion of our time, is an ideal place to foster the positive connections we all need — not just for our well-being but also for our productivity and health.
That said, friendship at work is often tricky for a reason. It can be a mixed blessing; people who are friends with coworkers tend to perform better at work but they also report being more emotionally exhausted and having difficulty maintaining their friendships. When conflict (inevitably) arises among work friends, relationship conflict leads to negative outcomes in teams composed of friends, but positive outcomes among teams without prior friendships.
The difficult truth is it just may not be possible to have friendships at work without some degree of fallout. There are real entanglements that can arise when the boundaries between work and friendship become blurred. Work responsibilities need to take precedence over socializing. Managers and leaders need to continue being able to assign tasks and role hierarchy does need to be respected. Performance evaluations need to happen authentically and honestly. Competition is often part of workplace culture — will you or your peer get promoted? — which can lead to lack of trust or willingness to get too close. After all, how would your friendship fare after you become their manager?
Alongside these factors is a fear of being vulnerable, of disclosing too much in case this disclosure makes you look weaker or less competent — worse yet, you might get thrown under the bus for it.
Finally, the need to look and act professional creates a desire not to get too informal or familiar with anyone else — after all, “professional distance” ensures that people will maintain respect for you. All of this can make friendship at work hard — or at least somewhat scary.
Maybe that’s why, despite the benefits of having friends at work, some people still choose to avoid it. Some just aren’t comfortable having real friends at work. They may benefit from a more formal relationship with their colleagues. And that’s OK. Many of the benefits that come from having friends at work likely emanate from values like vulnerabilityauthenticity, and compassion. Emphasizing these values, rather than the relationships, can allow workplaces to feel “friendly” even if there aren’t real friendships. Moreover, research by John Cacioppo, professor at the University of Chicago and author of Loneliness, shows that the true health and happiness benefits of social connection stem less from how many friends you have in your circle and more from how connected you feel to them (after all, you can feel lonely in a crowd). So nurturing that internal and subjective feeling of connection and friendliness is really most important.
While some people will always be hesitant to make friends at work, for these or other reasons, social connection is a basic human need. All friendships have hard moments. Work friendships just have different ones.

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