Have you ever wondered what happens when you take a really, really dumb idea and run with it? Not just run with it for a few steps either, run withthe it for nearly three decades until it becomes the foundation for the decision making process throughout the business world. Look around. This, right now, is what happens when you run with a really dumb idea for that long.
In 1981, Jack Welch gave a speech about “shareholder value” that became the mantra for corporate America. Thursday he said, “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy…your main constituencies are your employees, your customers and your products.”
Yes, it is the dumbest idea in the world. Yes, it is a result rather than a strategy. But it’s been treated as a strategy for so long that the dumbest idea in the world has taken root and grown into a mighty tree that’s in the process of falling onto our house.
American automakers lag behind their foreign competition in terms of technology, quality, and reliability because they were chasing shareholder value. Our newspapers became little better than Soviet toilet paper because they were chasing shareholder value. The manufacturing jobs that used to sustain America’s middle-class took flight in pursuit of shareholder value.
Wall Street’s valuable presence on the economic landscape became perverted. No longer was it a place where companies went to raise the money that would be invested in what Mr. Welch describes as the “main constituencies” of a business; it became a place where companies went to prove themselves to people with no constituency other than their own self-benefit. In the process of accepting undue fealty to its power, Wall Street deemed itself arbiter of all that is good and right, and did so in the name of the sacred shareholder value.
Rising mightily, it demanded sacrifice for its blessing. Quarterly profits should, it decreed, be an ever-increasing number. And like all wrathful gods, it declared that the ends justify the means. The sacrifices that it required to withhold financial fire and brimstone were to be the very constituencies of supplicant businesses. And so it was done.
But vengeful gods of justice are not easily satiated. As the Mayan practice of sacrifice to ensure good fortune descended into an orgy of sacrificial violence, so too did the high priests of American business lose sight of the ends in the frenzy of the means. Even as they found themselves forsaken by their gods, ready to be consigned to the hell-fires of bankruptcy and begging for mercy in the form of bailouts, they promised that the sacrifices would go on. Restructuring plans pay little heed to the “main constituencies” of business, focusing instead on how many sacrifices might satisfy the gods.
Mr. Welch, wearing sackcloth and covered in ashes, has returned. He speaks as one who has been to the mountain top and conversed with flaming shrubbery, telling the faithful to turn away from their golden ram. But what else do they know? The constituencies that he speaks of so reverently have already been offered.
Swallower of planets. The profits of doom. Quarterly projections. The profits of doom.*