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Interview with John Kay, Director designate of Oxford Universitys School of Management Studies.
In Fortune, February 17, 1987, p. 133-4.
|While nothing you read on this page is likely to change your mind, perhaps you will enjoy the issues.|
Those of us interested in operations research and in corporate decision policy often agonize over the issue: What is to be optimized in business decision making? It is a matter of, "What is the objective?," and having a way to measure value in the context of the objective(s).
In this interview article, Professor Kay argues that managers need to balance all stakeholders interests. He claims it is "bizarre" to say that stockholders own other than purely physical assets. A companys purpose is "producing goods and services people want. Business is about providing employment, providing value for customers, for developing skills of employees, for developing capabilities of suppliersas well as earning money for shareholders."
The interview provides mostly lucid arguments both ways. Although Kay clearly favors a balanced stakeholder treatment, he includes the counter-argument: "Why should managers give priority to shareholders' interests? The most compelling answer I hear is that it's because the shareholders own the business." This position, contrary to his thinking, sounds good to me.
Persons generally argue that a successful business creates value. Further, most would agree that a necessary condition is a win-win sharing between shareholders, employees, customers and other stakeholders. From an optimization viewpoint, then, what is to be maximized? Product or service quality, employee wages, and corporate altruism can always be increased at the expense of the stockholders. Recognizing stockholder ownership seems the only legitimate and credible approach. A coincidence, happily for all concerned, is that treating stakeholders fairly seems to be a necessary strategy in maximizing stockholders interests (i.e., maximizing present value or expected monetary value).
If you enjoy reading about this controversial topic, you may want to pick up a copy of:
by James C. Collins and Jerry I. Porras, 1997, HarperCollins, now in paperback, 342 pages (first in hardback, 1994).
The authors, with help from lots of researchers at Stanford University, studied visionary corporations. "Visionary companies are premier institutionsthe crown jewelsin their industries, widely admired by their peers and having a long track record of making a significant impact on the world around them."
The dominant theme in the book is that great, enduring companies come about only by deliberately pursuing a purpose beyond pure profit. The visionary companies:
What is missing, I think, is acknowledging that capitalism is what makes it all work. What's wrong with a corporation including a belief statement, something like, "Shareholders own the company"? While not particularly inspirational for the troops and customers, this acknowledges the reality and purpose of enterprise. It serves to help guide decision making.
Eighteen American companies are compared, each to a peer company. The 18 cataloged "Visionary" companies include: 3M, American Express, Boeing, Citicorp, Ford, General Electric, Hewlett-Packard, IBM, Johnson & Johnson, Marriott, Merck, Motorola, Nordstrom, Philip Morris, Procter & Gamble, Sony, Wal-Mart, and Walt Disney. [No petroleum companies made the list.]
Built to Last is great reading. We all want to work for and to help build great organizations. This book purports to provide a blueprint. While the authors appear to overreach at times, there is a great amount of detail and synthesis. I especially enjoyed the core values extracted for the visionary companies, extracted for consistency for at least three generations of chief executives.
Pursuing profit, by building organizations that provide goods and services that people want to buy, is what makes the economic engine work. It is extraordinary that this functions so efficiently. Society permits corporations artificial entities to exist because they can accomplish things that individuals cannot. Fortunately, providing an attractive return to stock investors is fully compatible with being a good corporate citizen. Profits is perhaps the most significant measure of success. Capitalism is a wonderful system, and getting better as employees are becoming more business-literate.
Malcolm S. Forbes, Jr., Editor-in-Chief, Forbes
Excerpt from Imprimis, vol. 22, No. 9, September 1993.
"Capitalism works better than any of us can conceive. It is also the only truly moral system of exchange. It encourages individuals to freely devote their energies and impulses to peaceful pursuits, to the satisfaction of others' wants and needs, and to constructive action for the welfare of all. The basis for capitalism is not greed. You don't see misers creating Wal-Marts and Microsofts.
"Think about it for a moment. Capitalism is truly miraculous. What other system enables us to cooperate with millions of other ordinary peoplewhom we will never meet but to whom we will gladly provide goods and servicesin an incredible, complex web of commercial transactions? And what other system perpetuates itself, working every day, year in, year out, with no single hand guiding it?
"Capitalism is a moral system if only because it is based on trust. When we turn on a light, we assume that there will be electricity. When we drive into a service station, we assume that there will be fuel. When we walk into a restaurant, we assume that there will be food. If we were to make a list of all the basic things that capitalism providesthings that we take for grantedit would fill an encyclopedia."
John Schuyler, February 1997