Beyond Shareholder Value

Author: Dean Davison ,

What is the purpose of your business?


That question is more than a discussion topic for an MBA class. You must know the answer for your business to make the right decisions about whom to hire, how to operate and what priorities to set.

For generations, many American businesses operated according to the business gospel of Nobel Prize-winning economist Milton Friedman . “There is one and only one social responsibility of business,” Friedman wrote in 1970. “Engage in activities designed to increase its profits.”

Simple enough.

Unfortunately, that single-minded focus on shareholder value is incomplete and shortsighted.


Give credit to the Business Roundtable, a group of leading U.S. CEO’s, who recently acknowledged the shortcomings of “shareholders first.” They issued a revised statement on the purpose of business, broadening the emphasis to include customers, employees, suppliers and communities.

Specifically, the Business Roundtable CEO’s committed to:
  • Delivering value to our customers.
  • Investing in our employees.
  • Dealing fairly and ethically with our suppliers.
  • Supporting the communities in which we work.
  • Generating long-term value for shareholders.

No business, public or private, massive or tiny, can sustain itself successfully for the long term without having a bigger purpose than profit. People—your employees—aren’t particularly motivated by generating bigger profits for shareholders. They recognize the importance of profits and fear losing their job or at least not getting a pay increase if profits don’t flow.

But what employees want most is a sense of purpose. Does their work matter? Effective leaders help teams understand why it matters. Providing a vision and purpose for your team or organization is the essence of leadership. It’s all about answering the question, “Why?”

At Core Catalysts we work on a wide array of initiatives designed to help our clients smooth operations, improve processes and increase profitability. All of these projects require teams and organizations to change. Sometimes, change is relatively easy because the new system makes life better for employees, customers and suppliers.

But too many change initiatives—installing a new customer system or adjusting assembly line workflows—fail. Most failures are not due to poor strategy or systems design. They typically fail because they were poorly communicated or didn’t connect to the employees’ sense of purpose. Leadership had failed to answer the question, “Why are we doing this?” That’s why it’s vital to include a communications plan as part of any process or system improvement project.

Profits are the lifeblood of business. But sustaining the flow of profits for the long-term requires  you, your business and your employees to have a clear sense of purpose. Take a moment to answer the question “Why?” for your employees. It will help them understand your purpose and speed your success.

Author Dean Davison is a business strategist with the Executive on Demand program from Core Catalysts. Executive on Demand provides short-term C-Suite leaders resources for business transformation.