Two weeks ago, a Financial Times article implied that former GE CEO Jack Welch had made the mother of all reversals by denouncing “shareholder value” as a strategy.
“On the face of it, shareholder value is the dumbest idea in the world,” Welch said. “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”
This surprised a lot of people, since Welch is widely credited with making shareholder value a corporate obsession.
But a few days later in a Business Week interview, while not saying his comments were taken out of context, Welch did elaborate on what he really meant:
It’s obvious that strategies are what drive a business. You might, for instance, have a strategy around innovation aimed at producing the leading products in every cycle, or you might have a strategy to become the low-cost global supplier… But you would never tell your employees, “Shareholder value is our strategy.” That’s not a strategy you can touch. That’s not a strategy that helps you know what to do when you come to work every day. It doesn’t energize or motivate anyone. So basically my point is, increasing the value of your company in both the short and long term is an outcome of the implementation of successful strategies. I’ve always felt that way, and I’ve always said I felt that way.
Welch went on to say: “As people struggle in the current economic climate, everything is being questioned. People are asking what corporations do, how they reward people, and who they’re for. The context of the FT interview was about the future of capitalism. That’s on everyone’s mind right now, and it’s a good debate to have.”
The problem is that, because of our over-reactive, sound-bite culture, folks are debating whether shareholder value is a dumb idea instead of the future of capitalism. For example, FT’s Management Blog posed the question to Colin Mayer, the business school dean at Oxford, who eagerly replied, ”If, as Jack Welch has stated, shareholder value is “the dumbest idea in the world”, it is a dumb idea with a remarkably long, approximately 300-year, history.” That went on for six long paragraphs.
Even though I blog on management strategy, among other things, I sometimes give so-called management and leadership gurus a hard time for being too self-involved, self-important, and self-promoting. Well, those who got caught up in this fictional debate may actually deserve the label. As for all the anti-capitalism websites that added fuel to the fire, laugh it up while you can; this crisis won’t last forever.
