In a post last November I said, ” The 212-year-old force that was instrumental in building the most powerful industrial nation on the planet could be just as instrumental in presiding at its demise.”

Since then, I’ve taken a certain amount of ribbing, some friendly, some not, but all posing the same question, “Who the hell are you to make that statement?” I suppose the answer is “nobody,” at least in the sense of being any kind of authority, which I definitely am not.

But that doesn’t make me wrong.

In an opinion piece in Business Week, two real authorities, Clayton M. Christensen and Scott D. Anthony broach the subject from the other side.

They ask, “Why do smart, motivated, hardworking managers find it so difficult to innovate? Here’s one key culprit: the belief that management’s primary obligation is to maximize shareholder value. That credo, which is shaky to begin with, distorts managers’ sense of responsibility. And in fact it has been rendered obsolete by developments in the capital markets.”

They explain, “Through the 1960s…The average shareholding period was more than five years. Managers seeking to maximize the long-term strength and growth of their companies could reward these patient shareholders. But today shares are held, on average, less than 10 months. Should managers really regard such investors, whose investment horizons are shorter than the most nearsighted of managers, as stakeholders whose value they ought to maximize?”

They suggest, “Perhaps it is time for companies to adjust the paradigm of management responsibility: “You are investors and speculators, not shareholders, and you temporarily find yourselves holding the securities of our company. You are responsible for maximizing the returns on your investments. Our responsibility is to maximize the long-term value of this company. We will therefore act in the interest of those whose interests coincide with our long-term prospects, namely employees, customers, the communities in which our employees live, and the minority of investors who plan to hold our securities for several years.”

Well, the proof is in the pudding, or, in a very well known case, it’s in the denim. In 1985, led by then CEO Robert D. Haas, the founder’s great-great-grandnephew, and with the support of the Haas family, Levi Strauss went private. At the time, Haas said that the company couldn’t succeed in the future when all Wall Street/investors focused on were quarterly results.

I lived in San Francisco back then and still remember people cynically saying that the family would take Levi public in a short time just to make more millions.

How wrong they were. Sure, Levi’s had its ups and downs, but it’s still private, still going strong and still investing in the future.

More proof? Check out Warren Buffet’s holdings, or any other “patient” investor.

This entry was posted on Monday, June 4th, 2007 at 9:18 am and is filed under Business info, Culture, Leadership, Motivation, Retention. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.