“Shareholder Value” and short-term thinking

Can short-term thinking in a business leader be ethical… at least when the survival of the business is not at stake?  Isn’t there something intrinsically wrong about sacrificing the future for the sake of the present?

Valuing the long-term over the short-term is at the heart of a lot of messages that company management gives to employees about ethics.  When we say, “Don’t approve a shipment of peanut paste that you know is tainted,” we are really saying, “We don’t want you to sacrifice the company’s future reputation and sales for the sake of filling this one, immediate order.”

So not being hypocritical about that message in the top-level business decisions we make adds a bit of a challenge in maintaining our “tone at the top,” eh?

And so it seemed ethically obvious when Jack Welch told the Financial Times on March 12, that the “obsession with short-term profits and share price gains that has dominated the corporate world for over 20 years was ‘a dumb idea.’ Welch says now that the concept of “shareholder value” that he championed was never supposed to be a be-all-and-end-all.

According to the Financial Times:

Mr Welch said last week he never meant to suggest that setting, and meeting, profit expectations quarter after quarter in an effort to boost a company’s share price should be the main goal of corporate executives.

On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”

At least, that’s what he says now.

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