Wednesday, August 18, 2004

Say It Loud, Say It Proud -- `Shareholder Value!

According to Orit Gadiesh, chairman of management consultants Bain & Company, in a WSJ article of August 3rd, 2004, fraud cases not only dominate the headlines; their fallout makes senior managers more circumspect and risk-averse.

Gadiesh argues that because of scandals like WorldCom's, many CEOs shy away from bold pronouncements or actions. Instead, they're preoccupied with mounting concerns, some seemingly outside of running the business, that add up to huge distractions for CEOs:

  1. The first is defending themselves against the charge that all senior executives are crooks; crooks, moreover, who justified their crimes by citing shareholder value as their gospel. Many CEOs understand they can't win this debate. So they remain silent. They deal, instead, with the hassles of Sarbanes-Oxley, Congress's attempt to legislate trust, and the Higgs rules in the U.K.
  2. The second, related, CEO distraction is corporate image. CEOs are spending more and more time on the reputational front, promoting good deeds in social responsibility in an effort to be seen as "giving back."
  3. The third CEO preoccupation encompasses geopolitical risks, terrorism and the state of the global economy. For instance, U.S. companies increasingly worry about the "American-ness" of their brands overseas

However according to Gadiesh, CEOs have to reclaim their agenda. They must have the confidence to set long-term goals and the will to communicate those goals clearly. So it's long-term shareholder value creation that matters and CEOs need to earn the public's trust the old-fashioned way -- through performance. Because ultimately, the trust that companies build through continuous, solid performance outshines every other consideration.


Anonymous Anonymous said...

Although I am agreeing with Gadiesh that CEO's should not be distracted too much from what business is really about: making money, a question that can be raised is whether some leaders are still credible in claiming they will restore public trust by ensuring long-term shareholder value creation. Some leaders had clearly forgotten about the "long-term", creating artificially positive results by using all kinds of accounting tricks.

11:01 AM  
Anonymous Anonymous said...

Baloney. CEO’s that would succumb to the first two “distractions” identified by Gadiesh obviously were not sufficiently performance-oriented to begin with, and should be replaced. The third “distraction” isn’t related to the so-called fraud fallout at all, but is a completely separate issue.

9:44 AM  

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