Consider Shareholder Value as the Result, not the Main Purpose, of Enterprise Value Creation

We can see from the aforementioned arguments that to ascribe singularity and centrality of enterprise purpose to shareholder value creation is plainly wrong and misleading. The confusion arises because shareholder value is the only meaningful measure of overall enterprise success. The present value of all future cash flows remains the best overall demonstration of whether stakeholders are working together to create value. We have already seen that to single-mindedly chase shareholder value at the expense of other stakeholders and their purposes could in fact put the achievement of shareholder value improvement at risk. On the contrary, to pursue simultaneously and in a balanced fashion the purposes of all shareholders is to raise the likelihood of shareholder value improvement.

One could of course argue that, theoretically, if shareholder value thinking is properly applied, it would already include proper attention to the purposes of all stakeholders. Alas, in practice this just does not happen. Enterprise management is usually neither far-sighted enough nor wise enough to build such considerations into their decision making. There is a natural tendency to the short term that arises both from management's own limited job horizons and because some investors look primarily for short-term gains; traders, for example, have different and shorter term purposes than long-term investors like pension funds, insurance funds, or owner-managers.

Therefore, it seems reasonable to conclude that while theoretically shareholder value could provide the central sense of purpose for all enterprise stakeholders and all activities, in practice it does not. We have only to observe the yawning gaps in many industries between stakeholder expectations and the real benefits accruing to these stakeholders to confirm this: Customer satisfaction with such products or services as air travel, fast food, the media, and government services (to name but a few) are currently at a low ebb; employee motivation in organizations where employees feel squeezed like lemons to support ever “leaner and meaner” strategies is in the basement; cleavages between rich and poor are widening; environmental sustainability remains a societal dream; and top management often seems more driven by handsome bonuses than by the passion to add value. Is it going too far to wonder whether September 11, 2001, and its aftermath is not an early warning sign at the macro level of many imbalances at the individual firm level? President George Bush intoned, soon after September 11, what many are hardly daring to imagine: that our very civilization may well be threatened.

We may summarize these interdependencies of purpose, and the effects on the end result of shareholder value improvement, in terms of whether shareholder value is viewed as the central purpose (I call this shareholder value “push”), or whether it is viewed as one of a number of other stakeholder purposes, all of which must be satisfied if shareholder value is to be maximized (I call this shareholder value “pull”; see Table 9-2).^[3]