Quick Profits Can't Be the Main Goal
CEO's who run their businesses to get the stock price up and please their shareholders in the near term are putting their companies on a course of long-term decline.
Mission-driven companies accrue far more shareholder value than financially driven firms.
When raising the stock price is the priority, it takes precedence over considerations of marketplace competitiveness and customer satisfaction — which are crucial elements for building value over time.
And when top management runs out of options to immediately increase shareholder value, it tries to restructure to achieve financial goals.
Nonstrategic acquisitions, divestitures, consolidations, layoffs, and cutbacks follow.
By the time such restructuring is done, the corporation has lost its capacity for growth.
Impatient investors won’t give the CEO the time needed to revive the business. They press for a change in leadership or sale of the company.
But, the worst failing of being financially driven is that such a culture doesn’t rouse most people to strive for exceptional performance.
A few top execs have the promise of substantial wealth to motivate them. But they’re only a small fraction of the organization.
Financial incentives are far less meaningful for the majority of people who design, manufacture, and sell products and services.
Getting employees to feel a sense of purpose beyond making money is the only way for a company to consistently deliver innovative products, superior service, unsurpassed quality, and, ultimately, shareholder value.
Competitors can copy an innovative idea for a product or service. But an organization of highly dedicated people is hard to duplicate.
Furthermore, employees who place a high personal value on their work are remarkably resilient, even when cutbacks and layoffs are required.
In 1962, five years after Medtronic founder Earl Bakken invented the pacemaker, the company was near bankruptcy. Then Earl defined Medtronic’s mission: To restore people to full life and health.
This mission inspires employees to do superior work with dedication and passion. Leaders regularly refer to the mission before making strategic decisions.
And, it has led to spectacular results . From 1985 to 2003, shareholder value grew at a compound annual rate of 32%. Today, Medtronic is one of the 30 most valuable companies in the U.S.
Is the ability to create a meaningful mission limited to companies like Medtronic that are in the business of saving lives? No.
Being a leader in innovation has motivated the employees of 3M to be creative throughout the company’s history.
Intel employees are unwavering in their efforts to keep their company on the forefront of technology.
Microsoft employees are inspired by integrating all the software their users need into a single, highly functional system.
For the past 10 years, Wells Fargo has focused on providing superior customer service, expanding its network of branch banks throughout the Midwest and West.
By contrast, US Bancorp which is also based in Minnestoa, concentrated on cost cutting and centralizing services.
At first, it seemed as if U.S. Bancorp had the superior strategy, because its stock soared when cost cutting led to large profit increases.
But lack of attention to the customer and problems with employee morale eventually caused revenue and earnings growth to stall.
Its stock lost over half of its value, leading to the company’s sale to a smaller Milwaukee banking group.
In contrast, Wells Fargo’s growth was steady and its shareholder value is now double that of U.S. Bancorp.
Only by having a meaningful mission and supporting its pursuit, will companies survive and increase the value they can deliver to customers, employees, and their shareholders.
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