Enhancing Shareholder Value a.k.a. killing business success

At some point in the 1980’s someone came up with the idea of shareholder value. The idea was that the ultimate success of a company was to maximize the value that the company delivered to shareholders. Seems like a pretty reasonable idea, until you start to see what people who use this term really mean.

What is often done in the name of “enhancing shareholder value” is totally the antipathy of the obvious definition of the idea.

Surely (you would imagine) that shareholders would want to see a company perform well over a long period of time. And you would imagine that performing well would be a simple concept, where the money a company spends on developing and selling its product would be less than the money it brings in from its customers. You would imagine that in the same way you balance your bank account every month a company would be measured as being successful if there was “profit” on the business they perform.

But you would not be correct!

The stock market and therefore the executives of large companies look for increasing returns not just profit. So if a company continually makes a 10% profit every year according to those who measure shareholder value that company is failing.

So the pressure is on to show increases in revenue, and decreases in costs, so that year on year, quarter on quarter the business “grows”, and so the company gets bigger and the shareholders are then told by the “experts” that the shareholder value is increasing.

This drives companies to off-shore their workforce, find lower cost suppliers, reduce their work force and consider unbelievably expensive mergers and acquisitions. In the very short term these things seem to drive down costs or increase revenue and so that’s a good thing. But they really don’t make a company healthier, they kill it.

I’ve seen company executive’s looks to buy a company at any cost, just to get a small increase in revenue this year. It doesn’t matter that the money spent can never be recovered, it’s about achieving a revenue target, not a margin target. It’s often inane.

A large number of acquisitions never make a profit, what they do in move huge sums of money and stock from a healthy company to the owners of a less healthy company. The two merged companies for a short time have increased revenue, but the cost and mess of merging the businesses often leads to reduced performance and so the growth slows down. Angry customers leave, and new customers question the value of entering this created confusion. So all too often the sum of the parts is less than the whole, and within a few years the revenue of the merged business looks like the revenue would have already been of the healthier if the two parts if they had not merged. To me that says that the billions spent on the merger were entirely wasted. At the same time all the changes demanded to streamline the two businesses cause the best and the brightest to leave and huge political infighting between executives takes place to grab the reduced number of top spots. Innovation slows and then the business is forced to go through more rounds of off-shoring and layoffs to reduce costs even further to have to pay for the debt created from the merger.

Of course there are winners from M&A, those who broker the deal, the CEO’s and CFO’s, the banks and the private equity firms all get lucrative multi-million dollar payoffs as part of their self-created wonderland.

And there are lots of losers, employees, customers, shareholders.

I’ve worked for a number of companies who have acquired large businesses over and over again, and I’ve seen the carnage it creates. Apart from the small number of execs and bankers who make the deal happen, I’m at a loss to see who gains, except maybe of course for India and China.

Maximizing shareholder value seems to be the modern euphemism for “Screw you I’m taking it all”.


Why on Earth would anyone want to be a politician?

Political office is supposed to be a service to society, but today it seems that politicians get power and money.

There has always been an element of power associated with political office, and I suppose that is why most capital cities have special laws that allow things that are not allowed anywhere else, such as legalized prostitution, access to fireworks and lower than average taxes. It’s also why most capital cities are a long way from where most people actually want to live.

But recently it seems that politicians have been awarding themselves much more than their fair share of goodies. Wage increases above everyone else’s, huge pension schemes, massive benefit packages, longer and longer vacations, even the right to insider trade and take money in exchange for influence.

This has been a concern since the Greeks had an empire, and philosophers wrote about an elite class that ruled but couldn’t benefit from the rules they imposed (Plato’s Republic), and the documented corruption of the senate in Rome (the fall of the Roman Empire).

Whenever politicians throughout history have given themselves too much power, the weight of the corruption that this in turn delivers has always led to the balance being reset.

It doesn’t matter what system has been in place, various capitalist systems, different types of democracy, fascism, socialism, communism and even the sycophantic Byzantine Empire model, which used titles and awards to reward people until those very people realized there was this huge lump of unguarded wealth protected only by purely corrupt words.

We now have ridiculously wealthy and powerful politicians across Europe and America, who seem only interested in furthering their own wealth by doing the bidding of those even wealthier than themselves.

The poor don’t have enough to pay a significant proportion of taxes, and the rich have enough to be able to avoid paying a significant proportion of taxes. Those in the middle have and always will pay more than they should. But when the poorer get poorer still, and the rich get even richer, then the middle has to pay even more. And politicians who don’t spot this early enough and allow the balance to shift too far get in trouble.

They can try for a while to pander to people with words about religious fervor, or scare people with stories about terror and those of a different color, but in the end they end up in trouble. The world has moved on from guillotines and now the trouble mostly comes in the form of impeachments, fines , humiliation and prison terms (hellos Blagojevich, hello Neil Hamilton).

And yet today we have a situation in the US where an almost infinite amount of money is spent to influence the political agenda.

It’s shocking that in exchange for money politicians add clauses into laws that directly reward those who pay them. There are actual laws in the US that mean that specific job titles in specific banking jobs pay lower rates of taxes than everyone else. Seriously Hedge Fund managers pay a lower rate of tax! People who earn their money off of stock trades pay less tax (as a percentage) than people who fight fires or dig holes.

We have had politicians who have run large companies, who have actually given no bid contracts to the actual companies that used to run and have huge investments in.

We have billionaires paying politicians to give billionaires lower taxes. And then these politicians ask people who own a house to pay more to fund the schools in their town (because it’s a choice, give another billion to a billionaire or ensure that schools have enough books, there’s not enough for both).

We have billionaires paying politicians to ensure that the government buys trillions in armaments at list price, and using the words “war profiteer” never passes their lips.

The corruption is across the board.
• Gun companies pay politicians to ensure that everyone can buy guns.
• Drug companies pay politicians to ensure that the government pays list price for drugs and that consumers are banned from buying these same drugs from lower priced sellers abroad.
• Coal companies pay politicians to build coal powered power plants.
• Oil companies pay politicians to build pipelines to their oil refineries.
• Huge farmers pay politicians for farm subsidies.
• Banks pay politicians to remove regulations.
• And the list just goes on and on.

The issue is that politicians are able legally to be influenced by money. And while this happens they will always be corrupt.

On the surface different parties blame each other for the corruption, but all the pigs are feeding at exactly the same trough.

In some places in the world it’s illegal for politicians to accept money for influence (it’s considered a bribe), this doesn’t stop it happening totally, but it does send some to prison.

The issue is that whenever I hear a politician say that they want to get money out of politics, I still don’t trust them. I know they have an angle.

Have we reached the point where no politician can ever be trusted again?


The Amazon Choice: CX vs. Talent-First Culture?

By now you’ve likely read the NY Times article on Amazon’s controversial internal culture, and perhaps even CEO Bezos’ response to the reports and allegations. There’s a lot to discuss there but what I see now buzzing in the heads of current and would-be CEOs is the new choice they have, namely that in today’s economy should the ultimate priority be the big CX: customer experience (even at the expense of your employees’ well being) vs. Talent (and the winning the talent war).

With a small presence in California now, my business and I have been exposed to a Silicon Valley talent war which has apparently been raging since ~2012, with Google’s “death benefits” dueling with dogs in the office, Bruce Willis’ chef, and “cash for babies” from Zynga and Facebook. In this “war,” leading and aspiring new economy companies are prioritizing the attraction, development and retention of top talent with a bevy of incentives, seemingly bizarre perks and rewards, and culture-focused initiatives to stand out from the competition. I’ve seen creative, new “we care about you and your family” perks seemingly every week. Based on the success of these companies, some of this has even seeped east to Silicon Alley where ca$h had previously been king.

The premise is simple: get the best, make them happy and keep them, and they’ll help you attract, delight and retain customers. Shiny happy (and healthy) people begat customer and company success and happiness – R.E.M. and Kate would approve. Win-win-win for all involved, right?

Well, now there is a seemingly very different (and successful), model on display from Jeff Bezos and Amazon. This very non-California model is one that prioritizes customer experience (CX) over everything else, including employee health and well-being (and employee retention). While many workers cringed at the NY Times’ latest and earlier allegations, I personally know CEOs and executives who now feel vindicated regarding criticism of their relatively scorched-earth HR policies and see Bezos as having the best new “model for success.”

My question to you and to my young, aspiring CxOs at NYU: If you had to pick one over the other, would it be CX or would it be talent as your ultimate #1?


The one and only way to succeed with B2B marketing

Why is it that most B2B CMO’s last just a year or so? It’s simple they fall into the B2C trap, their CEO will ask them how much demand that last ad campaign generated, and they give an answer. It’s that simple the clock is ticking, trust will decay and a new CMO will be in within the year.

What happens? Well B2B marketing is a complex derivative process, where slowly but surely through brand enhancing value exchanges (aligned very carefully to the specifics of the target audience) prospects learn of problems that they should be thinking about solving, realize these are their problems, form a strategy to solve these problems, identify choices and enact a process of consideration, purchase and implementation. It’s a carefully crafted business process that involves decision makers, influencers, approvers and advisers.

B2B marketers have to make sure that they are providing great compelling knowledge, advice and quality access to the right people throughout the process without annoying the prospects. Being in consideration is key.

If the CMO ever says “well that advert generated 200% ROI” without explaining that the return on that investment was to move the needle on the brand or get prospects to move from unaware to aware then the assumption that the CEO would have it that that ad closed deals. That assumption can only lead to an erosion of trust, as clearly no ad in a B2B world actually closes a deal directly.

A B2B marketing campaign starts with a source of people to market too. These are contacts.

When a contact interacts with the campaign, ie. signing up for an event, downloading a gated asset, then that’s great, they are inquiring.

When those inquiring contacts start to share information about their intent which such jewels as a timeline, access to a budget, details on their requirement, then they are a lead.

And when that lead starts to get detailed it becomes qualified.

And when a qualified lead is accepted by sales as one they will expend effort on trying to win, assign an expected close date and a proposed deal value it becomes an opportunity.

I find it very helpful to call this the CILO process, as it’s a simple idea that the whole business can understand and adopt.

Not every single touch point builds leads, but campaigns build contacts, inquiries, leads, qualified leads and opportunities (CILO). Those are the true measures of a B2B marketing team. Ones that deeply drive sales and can start with a strategy and end with tactical success.

Training a CEO on what to expect and how to gain value from B2B marketing is the first and last job of the head of marketing. When the CEO and the marketing leaders are aligned, great things happen.

Any CMO that has survived longer that two years in a B2B marketing organization (without the CEO changing) is doing this.

When you look to hire a new head of marketing and you’re a B2B company, think about this when you read those resumes….