For decades, the business-school mantra has been this: The goal of the CEO is to maximize shareholder value.
Get real, says Roger L. Martin, dean of the Rotman School of Management at the University of Toronto. In his new book, Fixing the Game, Martin argues that this management philosophy has significant and harmful side effects. CEOs who place shareholder value above all else often manage their companies for the ”expectations market” — institutional investors and the stock market — rather than for the “real market,” which is customers.
When they manage for the expectation market, Martin says, CEOS often focus on the next quarter rather than the long term. They often fail to look ahead and often cut the R&D budget (hello, Hewlett-Packard). In the worst cases, Martin says, they tolerate accounting manipulation and they cut legal and ethical corners.
Ben Heineman Jr., a senior fellow at Harvard’s Law and Kennedy schools, extends this idea by using Steve Jobs as an example of a CEO who managed for the “real market. ” Of Jobs, Heineman writes on the blog network of Harvard Business Press, “his deep commitment was to make innovative, robust and beautiful products that delighted customers.”
And, he notes, shareholder value will follow. (Apple stock hit an all-time high today.)
Thus concludes my rant about Gannett rewarding Craig Dubow and his lieutenants for their deep commitment to make pared-down, feeble and emaciated products that disappoint customers.
