June 1, 2005 in Business

Short-term success isn’t what matters

Tim Mcguire United Feature Syndicate
 

I recently received an e-mail from a retiree who worries that some of my advice on workplace life has been out of step with a corporate environment which ignores employee concerns, crushes dissent and views top executives as privileged folk who think they are better than lower-level employees.

He wrote this: “I agree with you on your philosophy; however I feel you may be giving your readers tools that worked in 1965 (in a 2005 workplace). … I have to confess it appears as though when companies abandon your views and take a ‘shut up and get to work’ viewpoint their profits do rise.” He asked for my opinion.

My thoughts are that everything depends on the scorecard. If short-term profit performance is the only measure, some of these cutthroat companies look very good, but that may be the wrong scorecard for several reasons.

•The assumption that hard-driving, short-term thinking is a guarantee of long-term exceptional profit performance is probably wrong. James Collins and Jerry Porras, in the book “Built to Last: Successful Habits of Visionary Companies” (HarperBusiness, 2004), showed that from 1926 to 1990, visionary companies with values outperformed a general stock market fund by almost 15 times. It’s very hard to properly classify companies by their behavior, but there are a lot of indications that short-term profits do not guarantee long-term success.

•The equation that stock price equals success implies that rewarding stockholders is the same as rewarding owners. That may give us a distorted view of corporations. Marjorie Kelly, the author of one of my favorite books, “The Divine Right to Capital: Dethroning the Corporate Aristocracy” (Berrett-Koehler, 2003), argues that only one in every 100 stockholder dollars goes to the company. The rest, she says are speculative dollars “gambled among fellow shareholders.” Stockholders are not owners the way the shoemakers and the candlemakers owned their businesses. They are more gambler than owner.

•Many of us have been tricked into thinking that stock price is the only scorekeeping mechanism that matters. As Kelly says, layoffs and a destroyed community may be the result of a company’s actions, but if it improved the stock price we say the company did well. Measurement of profit is easy. Measuring how much a company damages the environment, a community’s self-image or a local economy is far more difficult to assess.

•Short-term focus on stock price ignores the important doctrine of sustainability that argues companies must meet the needs and aspirations of the present without compromising the ability to meet those of the future. So the company that meets short-term profit expectations by destroying the good will of the company brand, polluting the environment or by making the company an unpleasant place to work and unattractive to future employees puts the company at deep risk. Without a future profit stream the company has little real value.

•Without a balance between profits and integrity, between trust and concern for society, a company is bereft of pursuing a vision, which people like Collins and Porras argue creates better companies.

So, while I appreciate my e-mail friend’s concern for my practicality, I will continue to argue that while an obsession with quarterly profits may put a lot of money in a few executives’ pockets and it may make a company look exciting for a short time, it is definitely not the only way to measure a company’s success. If our society is going to move forward, big public companies must take their sense of history more seriously. Corporations have a crucial role in creating our future. If they continue to ignore the future in favor of short-term profits, our society is in deep trouble.

Tip for your search: Next time you decide a major company is doing something irresponsible don’t buy its products and let it know. The most effective way to force companies to be socially responsible is to make sure their negative behavior costs them.

Resource for your search: “What Matters Most” by Jeffrey Hollender and Stephen Fenichell (Basic Books 2004)

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