2/9/2015

SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

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SteveDenning(http://www.forbes.com/sites/stevedenning/)Contributor

Iwriteaboutradicalmanagement,leadership,innovation&narrative
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SalesforceCEOSlams'The
World'sDumbestIdea':
MaximizingShareholderValue
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JackWelch
(http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing
shareholdervaluethedumbestideaintheworld/)hascalleditthedumbest
ideaintheworld.
VinciGroup(http://www.forbes.com/sites/stevedenning/2014/07/13/the
creativeeconomyinfrancegivenchyvinci/)ChairmanandCEOXavier
Huillardhascalledittotallyidiotic.
AlibabaCEOJackMa(http://www.forbes.com/profile/jackma/)hassaidthat
customersarenumberoneemployeesarenumbertwoandshareholdersare
numberthree.
PaulPolman(http://www.theglobeandmail.com/reportonbusiness/rob
magazine/maybeitstimeforceostoputshareholders
second/article14507016/),CEOofUnilever(/companies/unilever/)[UN],has
denouncedthecultofshareholdervalue.
JohnMackeyatWholeFoods
(http://www.forbes.com/sites/stevedenning/2013/01/05/thenew
managementparadigmjohnmackeyswholefoods/)[WFM]hascondemned
businessesthatviewtheirpurposeasprofitmaximizationandtreatall

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SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

participantsinthesystemasmeanstothatend.
Thisweek,MarcBenioff
(http://www.forbes.com/profile/marcbenioff/),
ChairmanandCEOofSalesforce[CRM]joinedthese
CEOsanddeclaredinanarticleintheHuffington
Post(http://www.huffingtonpost.com/marc
benioff/acallforstakeholder
activists_b_6599000.html)thatthisstillpervasive
businesstheoryiswrong.Thebusinessofbusiness
isntjustaboutcreatingprofitsforshareholders
itsalsoaboutimprovingthestateoftheworldand
drivingstakeholdervalue.

MarcBenioff:Image:Wikipedia

Wehaveanimperative,saysBenioff,endorsingthevisionofProfessorKlaus
Schwab,founderoftheWorldEconomicForumtoshiftfromcreating
shareholdervaluetostakeholdervaluecorporatemanagementisntjust
accountabletoshareholdersbusinessesmustfocusonservingtheinterests

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SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

allstakeholderscustomers,employees,partners,suppliers,citizens,
governments,theenvironmentandanyotherentityimpactedbyits
operations.
Butwehavetodomore.Wehavetobuildradicallyhigherlevelsoftrustand
transparencywithallofourstakeholders.Weneedlegionsofstakeholder
activistswhoseektoholdcompaniesaccountableforallconstituents,going
beyondtheroleofinvestoractivists,whofocusonholdingCEOsandboardsof
directorsaccountableintermsofshareprice.Ultimately,themosteffective
waytocreateshareholdervalueistoservetheinterestsofallstakeholders.
Thecompetitiveadvantageyougainfrombeinga
caringandsharingcompanyissignificant,Benioff
wroteinhis2004book,CompassionateCapitalism.
Itinstillsinyourpeopleahigherintegritylevel.In
turn,stakeholderswanttobeassociatedwitha
companythathasheart.Communityservice:Youdo
itbecauseitstherightthingtodo,butitsalsothe
profitablethingtodo.
BenioffalsocitedFacebook
(http://www.forbes.com/facebookipo/)CEO,Mark
Zuckerberg(http://www.forbes.com/profile/mark
zuckerberg/)whowasquestionedabouthis
initiativesinlessdevelopedcountries.Itmattersto
thekindofinvestorsthatwewanttohave,because
wearereallyamissionfocusedcompany.Wewake
upeverydayandmakedecisionsbecausewewantto
helpconnecttheworld.Thatswhatweredoing
here.Zuckerbergsaid

(http://money.cnn.com/2015/01/28/technology/social/zuckerberginternet
cook/).Ifwewereonlyfocusedonmakingmoneywemightputallofour
energyonjustincreasingadstopeopleintheU.S.andtheothermost
developedcountries,butthatsnottheonlythingthatwecareabouthere.
HemightalsohavequotedTimCook
(http://www.forbes.com/sites/stevedenning/2014/03/07/whytimcook
doesntcareaboutthebloodyroi/),theCEOofApple[AAPL],who,when
askedtodisclosethecostsofApplesenergysustainabilityprograms,and
makeacommitmenttodoingonlythosethingsthatwereprofitable,Cook
replied,Whenweworkonmakingourdevicesaccessiblebytheblind,he
said,IdontconsiderthebloodyROI.Itwasthesamethingfor

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SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

environmentalissues,workersafety,andotherareasthatdonthavean
immediateprofit.Thecompanydoesalotofthingsforreasonsbesidesprofit
motive.Wewanttoleavetheworldbetterthanwefoundit.

Theproblemsofshareholdervaluetheory
Thesecriticismsofthesinglemindedpursuitofshareholdervalueas
measuredbythecurrentstockpricearewellfounded.Thetheoryhas
contributedto:
pervasiveshorttermism
(http://www.forbes.com/sites/stevedenning/2014/07/22/whycantwesolvethe
problemofshorttermism/)
divertedhumanandfinancialresourcesfromneededinvestmentsininnovation
(http://www.forbes.com/sites/stevedenning/2014/08/18/hbrhowceosbecame
takersnotmakers/)
dispiritedbothemployeesandmanagers,leadingtopervasivedisengagement
(http://www.forbes.com/sites/stevedenning/2014/10/08/debunkingmythsabout
workerpassion/)
generatedbadprofits(http://www.forbes.com/sites/stevedenning/2011/04/01/is
delightingthecustomerprofitable/)thatunderminedcustomerloyalty
causedexcessivefinancializationoftheeconomy
(http://www.forbes.com/sites/stevedenning/2014/06/03/whyfinancialization
hasrunamok/),makingitvulnerablefinancialcrashes
incentivizedCEOstobecomefinancialengineers
(http://www.forbes.com/sites/stevedenning/2014/10/26/ibmspotemkin
prosperity/)andcompaniestolosetheirentrepreneurialmojo
ledfirmstopursuetheextractionofvalue
(http://www.forbes.com/sites/stevedenning/2014/08/18/hbrhowceosbecame
takersnotmakers/),ratherthanthecreationofvalue
underminedtheeconomicrecovery
(http://www.forbes.com/sites/stevedenning/2013/07/29/howtheworlds
dumbestideakilledtheuseconomicrecovery/)fromtheGlobalFinancialCrisis
drasticallyreducedratesofreturn
(http://www.forbes.com/sites/stevedenning/2012/01/25/shiftindex2011the
mostimportantbusinessstudyever/)onassetsandoninvestedcapital
appropriatedgains
(http://www.forbes.com/sites/stevedenning/2014/10/08/debunkingmythsabout
workerpassion/)thatflowedfromworkersimprovementsinproductivityand
ledtoseculareconomicstagnation
(http://www.forbes.com/sites/stevedenning/2014/10/29/thesurprisingtruth
aboutwherenewjobscomefrom/)andincreasinglyunsustainableeconomic
inequality.

Itturnsoutthatprivatelyheldcompanies,whicharefreerfrompressuresof
shareholdervaluetheory,arebettervaluecreators
(http://www.forbes.com/sites/stevedenning/2014/10/29/thesurprising
truthaboutwherenewjobscomefrom/)thanpubliccompanies,andinvest
more.TheGermanandAustrianmittelstands(midsizedcompanies)have
prosperedbyrelentlessinnovation.

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SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

Ironically,thepursuitofmaximizingshareholdervalueasreflectedinthe
stockpricehasdonetheoppositeofwhatitsetouttodo.Ifanything,ithas
drivenfirmssteadilyfurtherawayfromactuallyaddingvaluetoshareholders.
In2010,RogerMartinwrotethatmaximizingshareholdervalueisatragically
flawedpremise,anditistimeweabandonedit.

By2014,areportfromtheAspenInstitute
(http://www.aspeninstitute.org/sites/default/files/content/upload/Unpacking_Corporate_Purpose_May_2014_0.pd
showedthatthoughtleaderswerecomingtothesameconclusion.Inacross
sectionofbusinessleaders,includingbothexecutivesandacademics,a
majority,particularlycorporateexecutives,agreedthattheprimarypurposeof
thecorporationisnottomaximizeshareholdervalue,butrathertoserve
customersinterests.Ineffect,thebestwaytoserveshareholdersinterestsis
todelivervaluetocustomers.
WhenwilltherestoftheCEOsseethelight?
Andreadalso:
TheDumbestIdeaInTheWorld:MaximizingShareholderValue
(http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing
shareholdervaluethedumbestideaintheworld/)
CapitalismsFutureIsAlreadyHere
(http://blogs.hbr.org/2014/09/capitalismsfutureisalreadyhere/)
TheOriginOfTheDumbestIdeaIntheWorld
(http://www.forbes.com/sites/stevedenning/2013/06/26/theoriginof
theworldsdumbestideamiltonfriedman/)
WhyTheWorldsDumbestIdeaIsFinallyDying
(http://www.forbes.com/sites/stevedenning/2014/06/17/whytheworlds
dumbestideaisfinallydying/)
Thefivesurprisesofradicalmanagement
(http://blogs.forbes.com/stevedenning/2011/07/08/thefivebig
surprisesofradicalmanagement/)
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SalesforceCEOSlams'TheWorld'sDumbestIdea':MaximizingShareholderValue

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