The Long View: Why “Maximizing Shareholder Value” Is On Its Way Out
In 1986, Peter Drucker warned of a severe threat to our “long-term economic future.”
“Corporate managements,” he wrote, “are being pushed into subordinating everything (even such long-range considerations as a company’s market standing, its technology, indeed its basic wealth-producing capacity) to immediate earnings and next week’s stock price.”
In the decades since Drucker sounded that alarm, the problem of short-termism hasn’t abated much, if at all. A recent global survey by the Canada Pension Plan Investment Board and McKinsey & Co. found that 63% of business leaders indicated that the pressure on their top executives to demonstrate strong short-term financial performance has increased in the past five years. Meanwhile, 55% of chief financial officers said that they would pass up an attractive capital investment project today if the investment led them to miss their quarterly earnings target, even by a little bit.
Still, amid this sorry state, one thing would surely gladden Drucker: The backlash against short-term corporate thinking is becoming more powerful all the time, thanks to the efforts of a broad range of individuals and organizations, including the Aspen Institute, Conscious Capitalism, the Stoos Network, the Management Innovation eXchange, the CFA Institute, the Purpose of the Corporation Project, the Sustainability Accounting Standards Board and many more.
Last week, 14 people who are passionate about making long-term thinking the new normal of business met in Claremont, Calif., at the Drucker Institute, the social enterprise that I run. Many in the room expressed that we’re getting closer to altering how capitalism operates. “The big challenge,” said Bill Densmore, coordinator of the Rules Change Project and one of the participants, “is how do we get to that inflection point quickly?”
Our agenda was threefold: to learn what each other is doing to counter corporate myopia, to see where we might be able to form natural alliances and support each other’s work, and to determine whether our various actions might somehow add up into something much larger. It was this last notion—of sparking a social movement—that seemed to prompt the most excitement.
To help us better understand how movements are born, we brought in Marshall Ganz, a senior lecturer at Harvard’s Kennedy School of Government, who served as a key aide to Cesar Chavez at the United Farm Workers and is widely credited with forging the grassroots strategy that catapulted Barack Obama into the White House. Ganz urged us to begin by determining who cares the most about the perverse effects of corporate short-termism and to then zero in on the “dissonance” they feel—that is, points of tension resolvable only through action.