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Does ‘Maximize Shareholder Value’ Really Make Sense?


“Maximize shareholder value.” If you’ve heard it once, you’ve heard it a thousand times, says author and marketing expert Dan Adams. It’s the pledge of allegiance recited in boardrooms around the world. The North Star used to guide the decisions of the business masses.


But Adams wants you to consider a controversial notion: What if that pledge is just a collection of meaningless words? And what if that faithfully followed star is actually a mirage? What if we get to where we think we’re going only to find … nothing?


“Think about it this way,” says Adams, president of


Advanced Industrial Marketing and author of “New Product Blueprinting: The Handbook for B2B Organic Growth”: “What happens when you give your employees a rousing speech about maximizing shareholder value? Once they wake up from their boredom-induced nap, they’ll go back to doing exactly what they had been doing before. After all, what can they do that will raise earnings per share? It’s like you’re asking them to count all the stars in the sky.”


The uninspiring nature of the “shareholder value” mantra is only one reason that Adams suggests you consider embracing a new one. The whole notion of shareholder value is built on a foundation of failed logic, he says, offering five reasons it’s time to focus instead on understanding and meeting the needs of your customers:


Shareholders care more about how healthy your company


looks than how healthy it is. According to the authors of the 2008 Harvard Business Review article “Innovation Killers,” “over 90% of the shares of publicly traded companies in the United States are held in the portfolios of mutual funds, pension funds and hedge funds. The average holding period for stocks in these portfolios is less than 10 months.”


Maximizing shareholder value doesn’t work anyway. We


should not be shocked to find this failed logic has led to failed results, Adams says. Roger Martin (“The Age of Customer Capitalism,” Harvard Business Review, Jan. 2010) researched and compared the pre-maximize era (pre-1976) with the post- maximize era (post-1976). Here’s what he found: The compound annual real shareholder return actually dropped from 7.6% to 5.9%. The new goal of maximizing shareholder value did nothing to … maximize shareholder value.


Only tangible goals, pursued day after day, ultimately get


results. Finishing a marathon is a noble goal. But it’s important to note that the personal satisfaction you feel afterwards is the result of achieving your goal … not the actual goal. If you planned to run a marathon and made personal satisfaction your goal, you would fail to focus your training on the more tangible task of running 26-plus miles. During the marathon, you would be tired,


Continued on Page 40


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