2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

http://www.forbes.com/sites/stevedenning/2015/02/05/salesforceceoslamstheworldsdumbestideamaximizingshareholdervalue/ 1/6

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Salesforce CEO Slams 'TheWorld's Dumbest Idea':Maximizing Shareholder ValueComment Now Follow Comments

Jack Welch(http://www.forbes.com/sites/stevedenning/2011/11/28/maximizingshareholdervaluethedumbestideaintheworld/) has called it “the dumbestidea in the world.”

Vinci Group (http://www.forbes.com/sites/stevedenning/2014/07/13/thecreativeeconomyinfrancegivenchyvinci/) Chairman and CEO XavierHuillard has called it “totally idiotic.”

Alibaba CEO Jack Ma (http://www.forbes.com/profile/jackma/) has said that“customers are number one; employees are number two and shareholders arenumber three.”

Paul Polman (http://www.theglobeandmail.com/reportonbusiness/robmagazine/maybeitstimeforceostoputshareholderssecond/article14507016/), CEO of Unilever (/companies/unilever/) [UN], hasdenounced “the cult of shareholder value.”

John Mackey at Whole Foods(http://www.forbes.com/sites/stevedenning/2013/01/05/thenewmanagementparadigmjohnmackeyswholefoods/) [WFM] has condemnedbusinesses that “view their purpose as profit maximization and treat all

Steve Denning (http://www.forbes.com/sites/stevedenning/) Contributor

I write about radical management, leadership, innovation & narrative

Opinions expressed by Forbes Contributors are their own.

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2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

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participants in the system as means to that end.”

This week, Marc Benioff(http://www.forbes.com/profile/marcbenioff/),Chairman and CEO of Salesforce [CRM] joined theseCEOs and declared in an article in the HuffingtonPost (http://www.huffingtonpost.com/marcbenioff/acallforstakeholderactivists_b_6599000.html) that this stillpervasivebusiness theory is “wrong. The business of businessisn’t just about creating profits for shareholders —it’s also about improving the state of the world anddriving stakeholder value.”

Marc Benioff: Image: Wikipedia

“We have an imperative,” says Benioff, endorsing the vision of Professor KlausSchwab, founder of the World Economic Forum “to shift from creatingshareholder value to stakeholder value… corporate management isn’t justaccountable to shareholders… businesses must focus on serving the interests

2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

http://www.forbes.com/sites/stevedenning/2015/02/05/salesforceceoslamstheworldsdumbestideamaximizingshareholdervalue/ 3/6

all stakeholders — customers, employees, partners, suppliers, citizens,governments, the environment and any other entity impacted by itsoperations.”

“But we have to do more. We have to build radically higher levels of trust andtransparency with all of our stakeholders. We need legions of ‘stakeholderactivists’ who seek to hold companies accountable for all constituents, goingbeyond the role of investor activists, who focus on holding CEOs and boards ofdirectors accountable in terms of share price. Ultimately, the most effectiveway to create shareholder value is to serve the interests of all stakeholders.”

“The competitive advantage you gain from being acaring and sharing company is significant,” Benioffwrote in his 2004 book, Compassionate Capitalism.“It instills in your people a higher integrity level. Inturn, stakeholders want to be associated with acompany that has heart. Community service: You doit because it’s the right thing to do, but it’s also theprofitable thing to do.”

Benioff also cited Facebook(http://www.forbes.com/facebookipo/) CEO, MarkZuckerberg (http://www.forbes.com/profile/markzuckerberg/) who was questioned about hisinitiatives in less developed countries. “It matters tothe kind of investors that we want to have, becausewe are really a missionfocused company. We wakeup every day and make decisions because we want tohelp connect the world. That’s what we’re doinghere.” Zuckerberg said

(http://money.cnn.com/2015/01/28/technology/social/zuckerberginternetcook/). “If we were only focused on making money we might put all of ourenergy on just increasing ads to people in the U.S. and the other mostdeveloped countries, but that’s not the only thing that we care about here.”

He might also have quoted Tim Cook(http://www.forbes.com/sites/stevedenning/2014/03/07/whytimcookdoesntcareaboutthebloodyroi/), the CEO of Apple [AAPL], who, whenasked to disclose the costs of Apple’s energy sustainability programs, andmake a commitment to doing only those things that were profitable, Cookreplied, “When we work on making our devices accessible by the blind,” hesaid, “I don’t consider the bloody ROI.” It was the same thing for

2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

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environmental issues, worker safety, and other areas that don’t have animmediate profit. The company does “a lot of things for reasons besides profitmotive. We want to leave the world better than we found it.”

The problems of shareholder value theoryThese criticisms of the singleminded pursuit of shareholder value asmeasured by the current stock price are wellfounded. The theory hascontributed to:

pervasive shorttermism(http://www.forbes.com/sites/stevedenning/2014/07/22/whycantwesolvetheproblemofshorttermism/);

diverted human and financial resources from needed investments in innovation(http://www.forbes.com/sites/stevedenning/2014/08/18/hbrhowceosbecametakersnotmakers/);

dispirited both employees and managers, leading to pervasive disengagement(http://www.forbes.com/sites/stevedenning/2014/10/08/debunkingmythsaboutworkerpassion/);

generated “bad profits (http://www.forbes.com/sites/stevedenning/2011/04/01/isdelightingthecustomerprofitable/)” that undermined customer loyalty;

caused excessive “financialization” of the economy(http://www.forbes.com/sites/stevedenning/2014/06/03/whyfinancializationhasrunamok/), making it vulnerable financial crashes;

incentivized CEOs to become financial engineers(http://www.forbes.com/sites/stevedenning/2014/10/26/ibmspotemkinprosperity/) and companies to lose their entrepreneurial mojo;

led firms to pursue the extraction of value(http://www.forbes.com/sites/stevedenning/2014/08/18/hbrhowceosbecametakersnotmakers/), rather than the creation of value;

undermined the economic recovery(http://www.forbes.com/sites/stevedenning/2013/07/29/howtheworldsdumbestideakilledtheuseconomicrecovery/) from the Global Financial Crisis;

drastically reduced rates of return(http://www.forbes.com/sites/stevedenning/2012/01/25/shiftindex2011themostimportantbusinessstudyever/) on assets and on invested capital;

appropriated gains(http://www.forbes.com/sites/stevedenning/2014/10/08/debunkingmythsaboutworkerpassion/) that flowed from workers’ improvements in productivity; and

led to secular economic stagnation(http://www.forbes.com/sites/stevedenning/2014/10/29/thesurprisingtruthaboutwherenewjobscomefrom/) and increasingly unsustainable economicinequality.

It turns out that privately held companies, which are freer from pressures ofshareholder value theory, are better value creators(http://www.forbes.com/sites/stevedenning/2014/10/29/thesurprisingtruthaboutwherenewjobscomefrom/) than public companies, and investmore. The German and Austrian “mittelstands” (midsized companies) haveprospered by relentless innovation.

2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

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Ironically, the pursuit of maximizing shareholder value as reflected in thestock price has done the opposite of what it set out to do. If anything, it hasdriven firms steadily further away from actually adding value to shareholders.

In 2010, Roger Martin wrote that maximizing shareholder value “is a tragicallyflawed premise, and it is time we abandoned it.”

By 2014, a report from the Aspen Institute(http://www.aspeninstitute.org/sites/default/files/content/upload/Unpacking_Corporate_Purpose_May_2014_0.pdf)showed that thought leaders were coming to the same conclusion. In a crosssection of business leaders, including both executives and academics, amajority, particularly corporate executives, agreed that the primary purpose ofthe corporation is not to maximize shareholder value, but rather “to servecustomers’ interests.” In effect, the best way to serve shareholders’ interests isto deliver value to customers.

When will the rest of the CEOs see the light?

And read also:

The Dumbest Idea In The World: Maximizing Shareholder Value(http://www.forbes.com/sites/stevedenning/2011/11/28/maximizingshareholdervaluethedumbestideaintheworld/)

Capitalism’s Future Is Already Here(http://blogs.hbr.org/2014/09/capitalismsfutureisalreadyhere/)

The Origin Of ‘The Dumbest Idea In the World’(http://www.forbes.com/sites/stevedenning/2013/06/26/theoriginoftheworldsdumbestideamiltonfriedman/)

Why The World’s Dumbest Idea Is Finally Dying(http://www.forbes.com/sites/stevedenning/2014/06/17/whytheworldsdumbestideaisfinallydying/)

The five surprises of radical management(http://blogs.forbes.com/stevedenning/2011/07/08/thefivebigsurprisesofradicalmanagement/)

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Follow Steve Denning on Twitter at @stevedenning

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2/9/2015 Salesforce CEO Slams 'The World's Dumbest Idea': Maximizing Shareholder Value

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