What’s measured improves
― Peter F. Drucker
What gets measured gets managed.
– Peter Drucker
The United States appears to have a white-hot economy, or at least the stock marketseems to indicate this. At the same time the vast majority of people are not benefiting. Life is genuinely hard for most people and getting harder. People have generally had jobs, but the jobs don’t lead to a good life with people stretched paycheck to paycheck, and health care ravaging any chance of having extra money. Simultaneously the rich are just getting richer. At the core of this disparity in outcomes from a seemingly robust business climate is the fundamental philosophy of our businesses, the maximization of stockholder value as the preeminent goal of business. This philosophy does not benefit business, customers, employees or society, it benefits shareholders who are the very rich. We now have moved to the point where the idea and the wealth it created at the top of the food chain has bred graft and corruption. The laws of the Nation have been altered to serve their wealth and away from serving the people. We are moving headlong toward catastrophe ushered in by the resulting imbalance.
So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not.
– Milton Friedman
The situation gets worse when one looks at government. Increasingly the government looks to business practices to effectively deliver results from their programs. The business practices that the government looks to are drawn from the prevailing philosophy, maximized shareholder value. Government programs don’t have shareholders, but the influence is strong. We see money as driving everything in our work. Technical excellence, service, employee engagement, social impacts and long-term health of programs are all scarified to this philosophy. In business the maximize shareholder value leads to short-term thinking (driven by quarterly statements, profits), and these breeds short-term thinking in government programs. As a result, we have produced terrible government, and terrible results. Increasingly, the result of government being ineffective and awful is a self-fulfilling prophesy. Government can be effective, but only if we manage using principles that focus on effectiveness. In a sense the right philosophy for government needs to be different because the profit motive is not present. In the place of profit we simply see an acute focus on money and cheapness replacing service and excellence.
On the face of it, shareholder value is the dumbest idea in the world.
– Jack Welch
Shareholder value is a result, not a strategy…your main constituencies are your employees, your customers and your products.
– Jack Welch
Maximizing shareholder value is not the only business principle we might focus on. Given the ability for the rich to buy government, it is no surprise its power has grown. Moreover, the rich only get richer as a result of this singular focus. Instead we might choose a business principle that balances profit and shareholders with the long-term health of the business (research & development, capital investment), employee benefits, developments, concerns and engagement, customer-orientation and social responsibility. All of these other priorities are conspicuously missing from our business climate, and our government program execution. In business we have happy rich stockholders, and in government programs no one is happy. The government exists to serve the people of the Nation and increasingly we are utterly inept. Government is not a bad idea, the bad idea is how we are managing it.
A change in focus in both business and government would benefit everyone except the very rich. We could have happier and better businesses in the long run, happier and better employees and customers. Business would act with social responsibility and benefit their respective communities beyond simply giving citizens jobs. They would act like good stewards of their community instead of trying to undermine all manner of laws and regulations that might undermine pure profit. The same attribute would be transformative for government programs. We would see long-term interests replace short-term approaches, employees would be served along with the taxpayers, and social responsibility would be served. We would see the idiotic and destructive idea that government-based work has any customers other than the Nation and its citizens.
These basic philosophies have major influence on how our society functions. In a sense we have chosen an approach that leads to rather predictable outcomes in vast wealth inequality and growing social deficits for everyone else. In adopting this principle mindlessly, we have helped create ineffective government. Let’s face it, the choice to make business principles the basis of government execution has produced terrible results. Perhaps it is not this basic principle, but the choice of the business principle to use. This choice was largely an article of faith. The leaders of business on like maximizing shareholder value because they are shareholders. It benefits them financially. In every other resect his philosophy is terrible for the businesses themselves, hurts employees, harms customers and allows abdication of social responsibility. We see businesses that are absolutely eager to harm the Nation, its citizens, the environment, and break the law all in the name of short-term profit.
Free enterprise cannot be justified as being good for business. It can be justified only as being good for society.
Each of these is a pretty good description of how wrong everything is wrong with the United States at large. The bosses are doing great. The higher the boss is in the company or government function, the better they doing. Executive compensation is soaring while everyone else falls behind. The nation has become utterly short-term focused in its thinking. We can barely focus on anything for more than a day these days. The employees are struggling mightily. People are hurting, and these people are the employees. We can’t expect people to be good employees, parents, citizens if their lives are hanging by a thread. Almost no one exercises any social responsibility with both government and businesses showing total disregard for the citizens of their nation and community. All of these ills are the direct result of embracing greed as the core principle for business and government. The outcomes should surprise no one. Fixing this would mean a wholesale change in the emphasis of the ruling class away from self-enrichment to broader leadership with responsibility for others.
Management is doing things right; leadership is doing the right things.
– Peter Drucker