This article was written by Sam Klaidman, Founder and Principal Adviser at Middlesex Consulting. He helps clients grow Service Revenue and Customer Satisfaction by defining service contracts and other services that meet customer’s needs and create value for them and their customers.
Most business executives, including service executives, spend most of their time dealing with tactical issues. Here are a few examples for CEO’s and Service Leaders:
Most of both group’s strategic decisions comes in the lead-up to the annual budget exercise. But this year things are different, even if the current situation comes in the budget run-up for most U.S. business. This year a topic to be surely discussed is the August 19, 2019 version of the Business Roundtable Statement on the Purpose of a Corporation
Since the 1997 Principles of Corporate Governance was released each version endorsed principles of shareholder primacy – that corporations exist principally to serve shareholders. The new document changes the focus from shareholders to stakeholders and, for many companies, adopting the new Principal will cause major change in the way they do business.
However, this notion was articulated in 1943 in the Johnson & Johnson Credo. Robert Wood Johnson describes his company’s responsibilities in this order: patients/doctors/nurses, customers, business partners, employees, communities, the environment and natural resources, and then, after all that, “stockholders should realize a fair return.”
And, in 1981, the Business Roundtable declared that companies needed to balance shareholders’ interests with “the legitimate concerns of other constituencies.” Once again, what goes around comes around!
From the press release for the new statement:
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
When 181 CEO’s and Board Chair’s sign a document with a list, it is reasonable to think that unless the list is in alphabetical order, as this list is NOT, then the order is significant.
In this case, the “tactical” objective of the business is to deliver value to the customers. To achieve this objective the business must take good care of their employees, suppliers, and communities and the environment. If we do these four things successfully then we achieve the long-term objective of delivering value to the shareholders.
For many companies, this Statement will make little or no impact because these companies have been behaving this way for years. This is especially true of start-ups and companies with a mission to improve the planet. But for others, this will be a big deal.
When planning to implement a change of this magnitude the first step to make sure the shareholders agree. Well, 58% of the Statement signers were either the Chair of the Board or Chair plus CEO, etc. It is reasonable to think that the Boards of these companies are in agreement but it may be a surprise to individual shareholders (including investment companies.) For the other 42% it is highly likely that the CEO brought this proposal to the Board and received their full support but one never knows…
But for now, let’s assume that the Board of Directors (which represents the shareholders) is in complete agreement.
When companies focus on growing shareholder value, it usually means pumping up the share price. CEO’s like nothing better than to boost about X number of consecutive quarters with year-over-year growth. Think back to the hay-days of GE. And when this trend stops, really bad things can happen for both the CEO and internal department leaders.
I can’t remember how many times my department’s workload was growing and yet I had to layoff a few people. Or I was told to increase prices (typically on spare parts) with no corresponding increase in value for our customers. And hasn’t at least one of your automation projects been held up until the next fiscal year just to conserve cash and make the balanced sheet look better? All in the name of creating more value for the shareholders.
Under the new statement, we will be more likely to be asked to increase our capital and operating investments if they create significant value for our customers and hence increase both the service or product sales and profits. We can expect to be challenged on how out business helps or hinders our carbon neutral efforts and what else we can do to improve our environment.
We can also expect HR to finally start pushing us to encourage our employees to take courses and improve their eating habits while on the road. And don’t be surprised if people are encouraged to meditate when they are feeling stressed.
All these changes will take a while to filter through the businesses. Along the way, many people will needs lots of mentoring to get on-board. However, in the long run, each of us individually and collectively, along with our customers will be much better off then we are today.