Say it ain’t so, Jack

Jack Welch, the longtime CEO of General Electric whose personal and corporate brands were synonymous with growing shareholder value in the Eighties and Nineties, is backpedaling now … big-time. There he is on Page 1 of today’s Financial Times.

The newspaper quotes Welch in a series on the future of capitalism:

“On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy … Your main constituencies are your employees, your customers and your products.”

Well. Not shareholders? The dumbest idea? We’re all wondering …

Was Welch drugged or tortured by Soviet agents? No, wait a minute, the evil empire fell long ago while Welch was still delivering regular-as-clockwork increases in profits – to the delight of GE shareholders.

So what has come over Welch? The Financial Times positions his blast at shareholder value as an executive spurning short-termism. FT lumps a quarterly earnings obsession together  the drive to improve share price.

Surely Welch is right that strategy is long-term and has to do with a company’s customers, product mix, competitive approach, investment in the future, etc.

But preserving and building value seems fundamental to the mission, aspiration, even raison d’être of a company. A corporation is essentially a trust between owners and their stewards. Shareholder value is part of most CEOs’ pay structure. And rightly so, I believe.

Of course, companies usually emphasize pursuit of long-term shareholder value. Investor relations is largely about explaining that pursuit to investors. OK, we can talk about fighting short-termism.

But, Jack Welch or not, I wouldn’t recommend adding “Shareholder value is the dumbest idea in the world” as a message point in your annual report or road-show presentation. Not today, not ever.

Anyone want to venture a comment on Welch’s statement?


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One Response to “Say it ain’t so, Jack”

  1. spinoza1111 Says:

    Fundamental? I’m not so certain. Many companies started out as community efforts to provide jobs and work on common projects: barn raisings. The LEGAL purpose of a company isn’t JUST to make profits, it’s also to evade debt in the sense of the limited liability partnership.

    Since the employee by definition is paid less than the value he creates for the firm, this party has to be recognized as a partner albeit a different one from he who puts in his time.

    Jack Welch’s tenure at GE illustrates what you get when in social matters you engage in reductionism, saying “it’s all about x”. You get one, ten, many Stalins like Welch, dictators who ruin companies and destroy people’s lives.

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