VALUES HELP YOU GENERATE SHAREHOLDER VALUE

When I was in business school thirty years ago, we were taught in our finance classes that it all came down to maximizing shareholder value. Whether we were working as managers, functional leaders, or senior officers, our focus was to create shareholder value by growing revenues, improving profit margin, and earning a larger profit. But what about a corporate value related to philanthropy, such as supporting the arts, science, or a particular local charity? How do those good deeds align with shareholder value? In other words, what's the company's return on the $1 million it gives to a charity, when its job is supposed to be moving the stock price from, say, $30 to $40 a share? Shouldn't managers generate shareholder value and let the shareholders decide how they want to spend their money?

The more I reflected on these questions in an effort to gain a balanced perspective, the more I could see the multiple sides of the issue. It was absolutely correct that a return must be generated for shareholders. The numbers alone, however, did not seem to capture the value equation, as I'll explain. I realized that philanthropy is important work that needs to be done, and if companies do not stand up to do their part, there will not be enough critical mass to support important projects, whether an art museum or a hospital wing. But here's where the light bulb really went off: good works can generate shareholder value.

What I came to realize in mathematical terms is that shareholder value is the dependent variable, not the independent variable. In other words, there are a number of factors that can directly influence the creation of shareholder value. One is the talented people in your organization. Another is having loyal customers, who are served by those talented people. When it comes to attracting the best people, extrinsic rewards such as salary and benefits are important, but for people to remain with an organization, the rewards have to be intrinsic as well: feeling good about themselves, being proud of the organization they work for, and knowing they make a difference. A company that is socially responsible and develops a positive reputation will be able to attract phenomenal people whose personal values are aligned with those of the company.

Over my many years in business, I realized that customers want to do business with people they can relate to and companies they admire. If a customer has to choose between two competing products that are both of high quality and a good value, her order will most likely go to the company that has what she considers the higher values. If Company A is a supporter of the arts, civic projects, socially responsible programs, and so forth, that positive association will stay with the customer. When it comes time for her to make a purchase, all other things being equal, Company A will have an edge over Company B, which is not known for supporting the broader community.