Why you shouldn’t focus on maximizing shareholder value

Catherine Bell is the founder of BluEra, an executive search and team transformation company. She’s also the best-selling and award-winning author of The Awakened Company, a thought-provoking read that explores how treating businesses as communities can transform them for the better.

By Catherine Bell

Whether you are working for a private or publicly-traded company, you are likely familiar with the concept of maximizing shareholder value. It’s a business model that was born in the eighties, and three decades later, it’s still widely regarded as the ultimate measure of success. Unfortunately, most CEOs I meet with solely focus on financial metrics, simply because this is the mantra they have grown up with.  

The model is indicative of a pervasive mindset across the business world: “business is business.” The purpose of a company is to make money, and whatever it takes to do so is okay—as long as it’s legal, at least quasi-legal, or can be gotten away with. While few would admit this publicly, the impact it has had on our economy is impossible to deny. And few would argue that “business as usual” is working well.

The evidence is clear: maximizing shareholder value is a failing concept.

It brought about the global financial crisis of 2007 through 2009. Fed by a drive for “more,” for decades a select class of investors increasingly used its clout to defang regulations and aggressively engage in high-risk activity, bringing the world’s most powerful economies to the brink of a narrowly-averted global depression.

It has led to corporate scandals—from Enron to Goldman Sachs—that have been met with far fewer repercussions for the perpetrators than for the people they negatively impacted, giving little incentive for corporations to change.

Most importantly, it has ruthlessly sacrificed the broader workforce, by creating a stressful, unfulfilling work environment that prioritizes profits over their welfare. Workplace dissatisfaction is on the rise, while the middle class is steadily shrinking.

Why do we assume that to increase shareholder value is of utmost importance to businesses, when the reality is that increasing shareholder value benefits the few, not the majority?

There’s another option: maximizing stakeholder value. That includes end-users, employees, management, and shareholders. It includes our suppliers, competitors, the communities and countries we operate in, and the planet earth.  We need to put value and emphasis on the quality of our experiences and the joy we are cultivating moment to moment.  

This new mindset requires that businesses focus on innovation, improving the wellbeing of their community, and making decisions for the longevity of the company and its team. It enables employees to come into their own, in a fulfilling and creative life. And for all those of you who are still wondering about profit: for the companies that have already shifted into this mode of operation—from Patagonia to Zappos—the financial rewards for the leadership, the team, and the shareholders have been substantial.

I call this being an “awakening company”—an organization that has moved from “me” to “we” in its thinking and practices, and that sees their employees, the communities they serve, and the planet itself as more than mere resources. I’ve seen the benefits in my own business, and I’ve interviewed experts and business leaders who have achieved the same results. So if you’re still focusing on maximizing shareholder value, it’s time reevaluate where that’s taking your business.

Ready to awaken your own business? Get your copy of The Awakened Company, and learn how companies are achieving a new standard of success. A best-seller within a week, one of Eight of the Best Business Books of 2015, and a Nautilus Silver Medal Winner for Best Business Book for 2015, it explores a new way of doing business: incorporating mindfulness and wisdom traditions to ultimately benefit companies, those involved in them, and the planet itself. It has earned praise from business leaders and industry experts, and is the blueprint for the successful executive search and team transformation company, BluEra.