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Values are important, and many of these choices are black-and-white.
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I have a couple of old stories that help me understand the present. Back in the 1990s, we spent some time working for one of the world’s most well-known firms, a manufacturer of business computers. We watched how they lavishly entertained clients, spending exceptional sums in ways that were ethically questionable, if not criminal. Customers were being bribed with pricey entertainment. When my colleague inquired about it, one of their sales managers replied, “The Japanese simply bribe their consumers. They simply hand over cash. We can only compete in this manner.” They were incorrect in believing that this was the only route, but I’ll get to that later. They felt compelled to compete in this way because they saw every transaction as a slam dunk, rather than a single moment in a growing continuing connection that provided long-term value to a customer, a relationship built on trust and honesty.
The second part of the story. I worked for Drackett, the Cincinnati-based manufacturer of Drano and Windex, when I was quite young and just starting out. (Talk about a long-lasting brand.) I was a “merchandiser’s” sidekick, the guy who goes from store to store, ensuring that the product gets an end cap display or a high shelf in the aisle. We’d sneak in, set up a particular show without authorization, and then get kicked out. It takes guts, ingenuity, and a wicked sense of humour. To be honest, it was a lot of fun. Nobody seemed to mind. Things were a little sloppy back then.
For the moments when they did listen to us, I was needed to memorize the sales pitch, the story that would persuade a store manager to promote our product over the competitor’s. It makes no difference what the tale is about. It would be a conventional sales spiel, emphasizing how Windex was the greatest innovation since the wheel. The store manager would say to me as soon as I started, “Cut the nonsense, kid. Just be honest with me.” I’d take a breath, grin, and say, “That’s fantastic. You’ve got a keen mind. So, here’s the truth.” Then I’d just go back to my customary pitch.
In both of these circumstances, ethics was sacrificed in favor of expediency. And the falsehood was repeated over and over until everyone believed it to be true. Alternatively, they may have ejected us.
This is how American business has evolved over the last four decades. We simply repeat the same sales pitch again and over until it appears to be the truth. The sales pitch emphasizes the importance of shareholders. We’ve abandoned the commitment to various human values that made America successful in the mid-twentieth century due to our long-term focus on short-term shareholder value. Instead, we’ve applied Occam’s Razor incorrectly to our company objective. The simplest solution to a problem is usually the best, according to William of Occam, a Medieval monk. “A problem-solving guideline is that entities should not be multiplied until absolutely necessary,” says the razor metaphor. For ages, the principle has been used in science, medicine, and everyday life.
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Previously, business difficulties were approached in the same way. In many ways, shareholder primacy is the simplest solution to increasing profits: do whatever it takes to reward shareholders as soon as feasible. Simple. However, this level of simplicity will devastate both our private sector and society.
The concept of shareholder primacy is straightforward. Everything you do is measured in terms of how much more profit you can make each quarter. Everything boils down to a number that you measure four times a year. It doesn’t get any more straightforward than that. When you define business in this way, it becomes clear who is the winner. You make the shareholder the only one who matters, and you do everything you can to ensure that he or she is rewarded as soon as possible. It’s a good thing to be responsible. However, not to a single stakeholder. Is quick cash ever a good thing? That’s an ethical issue we’ve conveniently overlooked.
Because we added the words “short-term” to shareholder primacy, it became simple. All of the outcomes must occur right now. Not in the next two, three, or ten years. The Chinese have mastered the art of patiently waiting for results. They’re staring down the New Silk Road for the next twenty years. We’re not. This minor adjustment—a focus on the short term—has resulted in tremendous income disparity and a nation dependent on its own banking sector. Money, not items and services, is how we make money. Rather of investing in the production of new products and services that create jobs and expand markets, we get rich through financial markets that have turned into a reliable casino.
In a capitalist, democratic society, there is only one straightforward solution to the problem of how to create a sustainable profit. You must turn ethical beliefs into a source of financial value. That means considering all of the human consequences of doing business when making the most important decisions: how to pay fair wages to employees, how to put out a request for proposals to suppliers, how to protect the environment in which your business operates, how to share your success with the community in which you operate, and how to give shareholders a long-term return on investment. Inclusive prosperity is driven by values. That’s the easy formula we’ve overlooked.
In my book, The Constant Choice, I show how firms can secure long-term prosperity and success by adhering to unquestionable values. This is why: A corporation that demonstrates its commitment to its employees and customers will have long-term employees and customers. Customers, employees, and suppliers that believe in and admire a firm will persist with it in good times and bad. They are accepted into a family. You might believe that you don’t want an employee for the rest of your life. The longer they stay, the more expensive they get. They do, however, become more knowledgeable, competent, and creative. They’re well worth the money you’ve put into them. By bringing a clever, creative vision to their professions every day, they become the foundation of your future. Those employees, who earn more at your place than anywhere else, will ensure that your business succeeds.
Short-term shareholder primacy becomes a myth we tell ourselves in order to fool ourselves into thinking we’ve solved the arduous difficulties of bringing fresh creative value to the market year after year while also caring for our people and society. When the global economy adds enormous competition to the game, it’s becoming more and more appealing to revert to that falsehood, to keep repeating it. However, it is at this point that you must adhere to your essential principles the most. There is no stronger set of principles and values than those defined in Johnson & Johnson’s credo, which the business and all of its stakeholders adopted decades ago.
Behind it all is the spirit of a longer-lasting Golden Rule for business, which is, predictably, the same as it is for humans. Do nothing to your suppliers, employees, or customers that you wouldn’t want done to you. Treat them as if they were family. Think towards the long-term future, not just the end of the quarter or even your tenure in the executive suite. Also, stay away from the deception of short-term shareholder value. The best way to secure a brighter future for everyone in your firm and in our country is to stay true to your beliefs and work for a long-term goal./nRead More

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