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?