The latest twist in the story of capitalism

From the Royal Society for the Arts Tomorrow's Company Lecture, given by management consultant Allan Kennedy in London

Share

The end of the shareholder-value era of business is drawing near. It has had us in its grip for the last 20 years of the 20th century, as one by one, company after company has come to embrace a singular purpose: maximising shareholder value. Before long, however, the forces set off in reaction to the shareholder-value movement will become so strong that the movement will be condemned to the dustbin of history as an idea that didn't work.

The end of the shareholder-value era of business is drawing near. It has had us in its grip for the last 20 years of the 20th century, as one by one, company after company has come to embrace a singular purpose: maximising shareholder value. Before long, however, the forces set off in reaction to the shareholder-value movement will become so strong that the movement will be condemned to the dustbin of history as an idea that didn't work.

The concept of shareholder value had its origins in the accounting world when a group of academic accountants first pointed out that discounting future cash-flow streams was a better way of predicting future stock-price levels than poring over reported accounting measures of performance.

This valid observation might have remained a relatively dry argument among academics had its implications not been spotted by a new breed of investment bankers, a breed that came to be known as the leveraged buy-out specialists.

But business did not start out with such a single-minded obsession about achieving a single goal. Some of the great companies founded in the 19th century, such as Procter and Gamble and Unilever, were family enterprises that occupied generations of the founding families in building the businesses into great enterprises.

As business grew in the 20th century to become central to economic life, a new breed of founder-entrepreneur moved into the spotlight.

The dominant characteristic of these mid-20th century entrepreneurs is that they were technocrats - engineers, inventors or functional specialists. Given their backgrounds, these entrepreneurs introduced to the world notions of modern management and meritocratic personnel policies, in part to move beyond the often inbred and insular world of the earlier family companies.

Almost to a person, the intent of these entrepreneurs in founding their businesses, ranging from Ed Land of Polaroid to Bill Hewlett and Dave Packard of Hewlett-Packard to Sam Walton of WalMart, was to bring something of value to the world. That they became very wealthy in the process was still a by-product.

Times change, of course. As the 20th century raced to a conclusion, a lot of people began to notice that founding a business was a good way to become quite wealthy indeed. Some of the entrepreneurs of the last third of the 20th century were therefore more focused on the wealth they could create and less on how they achieved this wealth.

While the shareholder-value movement swept US business in the late 1980s and 1990s, it has been much slower to gain acceptance in Europe. Workers' rights to participate in the inner workings of top management are enshrined in law in Germany, making it much harder for companies to pursue the maximisation of welfare for one stakeholder, the shareholder, at the expense of others. Across much of Europe, long-term equity holdings of banks and insurance companies insulate management from the short- term pressures faced in the US.

Gerhard Schröder, the German Chancellor, was roundly criticised in 1999 for encouraging a bail-out for the ailing Philipp Holzmann AG and for speaking out against the takeover of the German company Mannesmann by its British competitor Vodafone AirTouch; however, his public rejection of the "Anglo-Saxon business model" drew considerable support from both the public and business circles.

In the UK and Europe, there is still time for companies to extract the best from shareholder value - especially the notion that performance counts and managers ought to be accountable for it - while avoiding the downside so many of their US counterparts face.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Photo Booth Host

Negotiable: Recruitment Genius: This company offers London's best photo booth ...

Recruitment Genius: Domestic Gas Service Engineers



£25000 - £30000 per annum: Recruitment Genius: Domestic Gas Service Engineers ...

Recruitment Genius: Project Director / Operations Director

£50000 per annum: Recruitment Genius: This is an incredible opportunity for a ...

Recruitment Genius: Sales Administrator

£16000 - £17000 per annum: Recruitment Genius: A Sales Administrator is requir...

Day In a Page

Read Next
Freeman, centre, with Lord Gladwyn, left, and Harold Wilson on the programme The Great Divide in 1963  

John Freeman was a man of note who chose to erase himself from history

Terence Blacker
 

Letter from the Political Editor: Mr. Cameron is beginning to earn small victories in Europe

Andrew Grice
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'