If you are wondering who does come first, then you are asking the wrong question. There is no choice to be made as to where your priorities lie as a business leader. But we seem to be confused as if there is a real choice. The symbiotic relationship that exists between shareholders, customers and employees are clear for any business that intends to outcompete all others.
Active Knowledge Question:
What would you describe as the principal focus of your board and management team?
Challenges For The Board
Around the world, board members are being challenged by regulatory authorities and the community generally, especially through social media, as to where their priorities lie.
Are shareholders’ interests the number one priority, and legal obligation, of boards? Or is the movement against boards making them turn their attention towards customers and other stakeholders such as employees?
Really, this discussion is one that turns on the issue of profit maximisation. The movement against boards is arising from instances in which regulatory authorities, and the community, are challenging companies on the profits they are making and the practices they are adopting to generate those profits. At its essence, the movement is saying that the focus on profit-first is seeding unacceptable business practices.
A typical response across boards has been to create language such as ‘social licence’ to reflect what they consider to be the issue at hand. To hold a social licence, you must be a responsible corporate citizen. It reminds of the ‘corporate social responsibility’ programs of some years ago.
In all the discussions that are occurring in boardrooms around the world, I believe we are missing the point.
The Simple Connection
A mentor of many years ago said to me, ‘take care of the customer and everything else will follow, but if you take care of yourself, nothing will follow’.
Many businesses today focus on taking care of themselves, and that leads to actions that will work against their long-term success. You may be able to earn a higher profit today, but the customer will likely leave you, and there will be no profits for tomorrow.
It seems that many boards focus on short-term profits, dividends and market value. These are the metrics that capture their attention, this is how their success is measured, and often this is all they can see of the business. How many board meetings start with looking at the financial results, and sometimes struggle to find the time to get past that task?
But profit is only ever an outcome and not the catalyst of success. Looking at what has come out of the ‘business pipe’ doesn’t tell you much about what has led to that outcome.
What would it mean for boards if their absolute focus became ‘taking care of the customer’? I would think the content of their board meetings would significantly change as would their skill set and their closeness to the ‘coal face’.
The Symbiotic Connection
Here is a simplified explanation of the symbiotic connection that exists between customers, employees and shareholders:
- Businesses exist to compete. They compete around the value they deliver to their customers in meeting their needs, that is, the customers’ needs.
- If they compete well, great profits will be earned, with the focus on competing not the profits.
- The competitiveness of a business, that is its ability to compete, rests with the combined effort and talent of all the people who work within and with that business. Activate that effort and talent, and the business will be competitively fit.
- Capital value lies in the certainty that the business will earn enduring profits. That certainty rests with the competitiveness of the business.
- Profit flows from the ability to outcompete, which provides the return to shareholders for their investment in the company.
In even shorter form, ‘we exist to compete in meeting our customer needs with our people enabling us and from which shareholders yield their return’.
Want more profit, become more competitively fit to improve customer value.
But start looking at the numbers as the means to increase profit and short-termism, self-interest and politics always seem to emerge. And then all the problems that boards are presently struggling with will arise, and competitiveness ‘goes out the door’.
Businesses are made to compete. There is a competitive engine that determines how competitively fit your business is. Board’s need to recognise, understand and work their competitive engine. And in doing this they will serve their shareholders’ interest to their greatest ability, and also that of their customers and employees.
An entirely new level of performance.
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All the best in the success of your business,