(2022-03-21) Denning Why The Pandemic Of Maximizing Shareholder Value Is Still Raging

Steve Denning: Why The Pandemic Of Maximizing Shareholder Value Is Still Raging. The last 90 years have seen several missteps on corporate purpose. From the 1930s to the 1970s, corporate managers embraced “stakeholder capitalism.” (See Figure 1.3 above). Executives were expected to optimize among all the stakeholders—customers, staff and partners, shareholders, and society as a whole. The result? Not surprisingly, we saw many “garbage can organizations” emerge.

In September 1970, Nobel-Prize winning economist Milton Friedman’s famous New York Times article, followed by the efforts of his collaborators, economics professors Michael Jensen and William Meckling, conceived and launched the virus of maximizing shareholder value (MSV) on an unsuspecting world.

It wasn’t capitalism itself that caused all these problems: it was the virulent virus of maximizing shareholder value that still going strong.

MSV is still embedded in most big firms' goals, strategies, plans, processes, budgets, sales, and marketing processes, basically everything.

the BRT declaration of 2019 didn’t kill the MSV virus. On the surface, it merely returned us to the confusion of the very stakeholder capitalism that had failed us in the mid-20the century

Yet Another Misstep: ‘Profit And Purpose’

Going in two different directions at the same time may seem less confusing than going in four different directions at the same time as in stakeholder value in Figure 1.3, but, in substance, the error is the same: you can only go in one direction at once.

The Alternative Of Customer Capitalism (customer-driven)

Through the Internet, globalization, and deregulation, customers suddenly had choices

For those with eyes to see, customer capitalism is well underway. Firms that focus on continuous innovation for customers and are organized to be nimble, adaptable, and able to adjust on the fly to meet the shifting whims of a marketplace driven by end-users are flourishing

Making money is the result, not the goal of a corporation. Businessmen aren’t necessarily selfish when they are creating value for their customers.