Value Creation by Employees

Gautam Mahajan | Nov 9, 2013 1,714 views No Comments

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For months, people like me and members of the Board of the Value Creation Journal have been promoting Value Creation as an imperative, and that Corporates have to transform themselves to become Value Creators. That means the CXO’s should lead the charge and aid and abet their employees to become Value Creators.

I recently discussed this with Donovan Neale-May, the CEO of the CMO Council, who turned my thinking on its head (so to speak).

He suggested we need to work with executives, and that they would embrace the idea of Value Creation. Not only do they need to know what Value Creation is, but also what will Create Value. They need to recognise: how can I know whether I am Creating Value, how do I measure my Value Creation, how do I Create meaningful Value (and for whom?), how do I see the impact of Value Creation and what it does for me? So this takes us into the realm of ingenuity, imaginativeness, pro-activeness and initiative taking, and implementation. And how do organizations transform themselves into helping Value Creators?

First, I think, companies have to recognize Value Creation is an important role for the executive. They have to set an environment for Value Creation. So they need an enabling organisation, and they have to let go (not ask for conformists). They have to subtly promote Value Creation, while discussing what Value Creation will do for the Value Creators and the company. How, what and where to Create Value?

Donovan also wondered whether culture and regions had to do with Value Creation propensity. Or was management support more important than the culture of the country or the culture of the company. Could culture curtail Value Creation? He was interested in seeing if Indian executives were better/worse than Canada/Thailand/USA/Europe executives?

Eric Orts, a Professor at Wharton on Legal Studies and Business ethics, writes in his book Business Persons that executives Create Value for the shareholder. He mentions the concept of principal agents and that management is sometimes perceived as principal agents of shareholders. But he goes on to discuss about people coming together and forming teams to Create Value. But the corporate fraud issue, especially with respect to some accounting issues, partly has to do with (I quote)”incentives that are created by asking managers to only manage [with regard to] short-term shareholder value. The theory is … that managers should manage [in a way that increases] shareholder value”. At one time creating fraud was a role of managers/accountants to Create Value for the company, but that is changing. And if we accept that people Create Value, then employees become important as do business partners for whom Value is to be created.

Management has to create wealth for everybody, not just shareholders, Wealth just does not mean money, but also could be a social or other improvements. In fact the State of Delaware allows corporations to state their purpose of not only making money abut also of having a social objective, such as improving environment or alleviating poverty.

Therefore, managers have to look at the long term and not miss opportunities. Shareholders Create Value by understanding that retained earnings are the major source of growth and corporate wellbeing, and therefore should eschew short term motives. He gives examples of Google who have successfully built companies on avoiding short term thinking.

So where does this fit in with Donovan’s thoughts? Well, Prof Orts goes on to state that individuals from bottom up have to Create Value and innovate for the firm’s prosperity.

So here are two people coming to the same conclusion on Value Creation being the role of an executive. Donovan’s thoughts focus on the individual and that they should learn to Create Value. Prof. Orts focuses on the wellbeing of the firm, and comes to the conclusion that Value Creation should be encouraged to make the firm stronger, and not just short term gains.

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