Page 183 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

In particular, it will cause executives to reassess the impor-
tance of shareholder value, which has been part of the vocabu-
lary of business for many years. In the new era, executives will
need to find a better balance among shareholders, customers,
and employees.
That a seismic shift is taking place became clear when Jack
Welch, former chairman and CEO of GE, told the Financial
Times that “on the face of it, shareholder value is the dumbest
2
idea in the world.” This from a man who is famous for his com-
mitment to managing for shareholder value and for his com-
pany’s delivery against quarterly earnings-per-share estimates
year after year.
If Welch’s view becomes more prevalent, it would underline
a relative loss of influence for investors—something we expect
to intensify over the coming years. It would also signify a
broader shift in management priorities. The tyranny of a short-
term orientation toward quarterly results would give way to a
medium- to long-term focus by management. In particular,
executives would be better able to balance longer-term invest-
ment against shorter-term revenue-generating actions.
And, as experience shows, this is how true and lasting value
is created—even for shareholders. Optimizing for the short
term is not the way to create sustainable competitive advantage.
So in this respect, at least, there may be a positive outcome from
the Great Recession.

■ REDESIGNING COMPENSATION SYSTEMS ■

As executives adjust to the new realities—honing their political
skills, redrafting the social contract between employers and

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