There was a great column published this week by Joe Nocera entitled “Down with Shareholder Value“. In that column he challenged the long-held notion that the end-all and be-all of a corporation is the maximizing of shareholder value. He point out that this “truth” has really only been with us for around the last thirty years. He discusses how this this singular focus has resulted in a fair bit of unintended, and not highly desirable, consequences. He calls forth new theories coming out of business schools that look at a more holistic and long-term context for defining long-term strategic advantage and corporate success.
But he notes that one of the reasons why shareholder value is used as a measurement stick is that it can be distilled down to a simple set of metrics.
Metrics are important. No, essential. Without them, we cannot instill the feedback loop that improves performance. But if we move away from standard profitability measurements for guiding improved performance, what then do we have?
I would argue that it is not shareholder value but customer value that is critical to define and measure against to guide long-term growth. Tools such as the Net Promoter Score (NPS) can become powerful tools – if strategically used — to help guide the tiller of the modern corporation. But the problem is that few use NPS and other measurements of customer value strategically – though that is the topic for a future post.
