A couple of good articles by Jason Kottke “Asking ‘who’s the customer?'” and a follow on from John Gruber “On the Long-Term Viability of Apple’s Customer-First Strategy” that are worth reading. They both have interesting comments regarding the Church of Maximizing Shareholder Value and how that undermines serving customers well.
Jason Kottke seems to characterise the “big investment banks, mutual funds, and hedge funds who buy their stock” as something completely removed from customers. But he doesn’t go quite enough with his logic. Those entities have their own customers, be they individual retail customers buying mutual funds or institutional customers like pension funds that are paying out to their customers, like the average retired teacher, civil servant, or factory worker (if the pensions are properly funded that is, but that’s another story…). So it goes full circle and perversely this customer pressures the mutual fund (by voting with their money) or institutional investor to perform, and they in turn push on companies to maximize shareholder value by making changes that aren’t necessarily in the interest of the person who started the whole thing.
The real problem here isn’t maximizing shareholder value; I believe that’s a pretty good goal. But rather it is the short-termism that you’re only as good as your last quarter that causes companies to make poor decisions and boost earnings today at the expense of tomorrow. For example, John Gruber notes that:
Slumps are inevitable. And I worry that eventually, during such a slump, “the market” will put irresistible pressure on Apple’s future leadership to start acting more like a typical company — one that only pays lip service to creating great products and putting customers first.
I’ll steal an idea from a course I took taught by Sir Andrew Likierman where he often stated that most things related to measuring organisational performance would be well served by suffixing “for the long run”. I didn’t get a particularly good mark in the course but it’s an idea that has always stuck with me.
Maximizing shareholder value is an idea without focus and is open to short-term decision making. But maximising shareholder value for the long run is a totally different matter. Yes, you need to return value to the shareholders, but if you do so by messing up your customers today, watch out.