Regular
readers of this epic will know that I am an enthusiastic listener to the BBC
World Service and a few days ago they ran a very interesting discussion in
short v long termism in business.
Taking
part were an academic, a hedge fund manager and a leader of a large corporate.
Most
of the debate was centred around large cap corporates and the pressures put on
them to deliver shareholder value. The
corporate leader felt that this militated against the way that he wanted to run
his business.
It
is all about the dichotomy between short termism driven by the market which
demands constant growth of both turnover and profits against the long term view
with the emphasis on the customer, good service and engaged employees.
The
corporate leader was decidedly a long term advocate and derided the bottom line
driven businesses which he said had capitulated to the demands of the stock
market.
He
said that his business, apparently like Warren Buffett, had made a conscious
and courageous decision to ignore the share price and to orientate the business
towards the customer.
The
majority of SMEs do not have the pressure of having to accede to the demands of
the market but in the end they also have to drive shareholder value. Fortunately this cannot be measured on a
daily or even hourly basis on a FTSE or Dow Jones look alike but the
requirement exists nevertheless.
Generally
while the owner/s of an SME can generate a satisfactory lifestyle, the real
value of the business lies in its potential sale value at some time. This can
and does vary over time and only becomes relevant at sale or inward investment
time.
In
his early days at GE the legendary Jack Welch like many other corporate leaders
was bottom line driven and below average performers in the business lived in a
state of constant fear for their future.
His
views seem to mellow over the years but the demands of the market were still a
strong influence on the ethos and culture of GE.
The
question to ask is, do we want to run the business with the bottom line as the
only driver with all that implies, or do we look to the long term, to build a
loyal customer base, a great reputation for product and service and a happy and
engaged workforce?
Perhaps
in the corporate world Enron is an excellent example of the short term bottom
line driven approach, and Apple of the long term, innovative, customer driven
ethos.
This
not to say that the long term culture ignores shareholder value but perhaps it
is angled more towards stakeholder value which takes into account customers,
suppliers, employees and the community as well as shareholders and investors.
As long as the shareholders and investors
accept that the business is in it for the long term with the probable and
consequential growth in value then the customer driven ethos is far more likely
to deliver the goods than the bottom line driven business.
If
you can excuse the mixed metaphors it's the choice between the shooting star
with fast burn out or the long slow route to a successful outcome.
The
bottom line is merely a measure of the success of the way the business is run
and is not an end in itself.
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