Maximizing Shareholder Value

Lego businessman on bench

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“On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”
This statement came from the one person who might have been the best CEO ever to run the trick of maximizing shareholder value. It was Jack Welch who said this to Financial Times in 2009.
When I came to STORA (now Stora Enso) in 1996, the first words I heard from the CEO Lars-Åke Helgesson were that his job was to increase shareholder value. To me this was back then a major surprise; I thought that the products were the core. Well, that’s what it all comes back to in the paper industry – tonnes! There was soon a chicken race between the newly formed Stora Enso and International Paper. IP had always been the biggest of them all – in tonnes. This race continued several years, seemingly resulting in big bonuses for the kamikaze pilots Jukka Härmälä and John Dillon.
Early on, I started to believe that it was the customer that should be in focus. This was however not often a standpoint we saw in leaders of the paper industry. They often referred to their business as “the industry”, and were regarded as highly arrogant by most of their customers. This attitude was present on almost all levels, the standard answer to a complaint on poor performance in a printing press being it is not paper related. An answer that actually never resulted in happy customers.
Recently, there has been some improvement in the attitude from paper companies. I have even heard the concept of “customer success” being mentioned by at least one CEO. It may never be to late to change…

For more comments on shareholder value not being a wise strategy, please read Steve Denning's column in Forbes: The Dumbest Idea In The World: Maximizing Shareholder Value.

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