Last week, I read an article in The Atlantic that made a convincing argument: The doctrine that businesses must be managed to benefit their investors contributed to the economic collapse of 2008. CEOs whose main goal is to maximize return for investors (often including themselves) may find themselves ripping off customers, shafting employees, destroying communities, and trashing the environment at large.
As if to prove the point, a press release landed in my inbox the same day. It came from a "shareholder activists" group and lambasted Costco and Walgreen's for their membership in the Retail Industry Leaders Association, because the group encourages having sustainability goals. What's so wrong with sustainability? It has "the potential to reduce the company's bottom line."
If managing for maximum investor returns looks evil, there's a good reason: It's another way of saying, "Greed is good." That notion took a beating in the 1987 movie "Wall Street," but it has survived in the way people run companies today.
Especially start-ups. Angel investors and venture capital firms approach investing as a numbers game. They know that the vast majority of companies they fund will fail; they're betting that the few that succeed will provide spectacular enough returns to make up for the rest. That puts a lot of pressure on those lucky few to make lots of money very quickly, one reason investors constantly push start-ups to get their products to market as fast as they can.
That kind of short-term thinking is bad for the economy, disastrous for the environment, and probably isn't doing your company any favors either. There's a better way.
Don't hyper-focus on profits.
Yes, your company needs to be profitable. You also need to build a brand that customers will trust. Since you'll have to compete in an increasingly tight market for skills, your company needs a reputation as a good place to work. You also need the community around you to be a welcoming and healthy place. Pursue profits or investment returns at the expense of any of these, and your investors may be happy but you'll have done your company future harm.
Pick the long-term investor over the short-term investor.
This simple change in approach could fix much of what's wrong with Corporate America today. Instead of worrying about monthly, quarterly, or even annual numbers that should only matter to investors who want to cash out right away, think about what will help those investors (or their heirs) who still have a stake in your company 50 years from now. That should give you the right perspective to make tough decisions that may be painful in the short run but will make your company stronger in the long run.
Don't let anyone rush you.
At TheNextWeb's first U.S.-based conference last week, serial entrepreneur Soraya Darabi (Foodspotting, Zady) told the audience what she'd learned the hard way as a serial entrepreneur. "Most investors advise following the 80/20 rule--that you should launch when you've got things 80 percent right," she explained. "I don't believe that anymore. You can only launch once."
And, she noted, if you want to reach millennial customers, you can't do it with great products or great prices alone--you have to manage for the bigger picture because younger customers care about these things. That's why her new company is focused on saving artisan crafts at risk of disappearing from the world, and donates a portion of its revenues to The Bootstrap Project, which seeks to preserve traditional and disappearing crafts. "We're actually saving these skill sets for the long term," she said. "'Social good' isn't just a hook we use for marketing."