Podium: Allan Kennedy: The Latest Twist in the Story of Capitalism ; from the Royal Society for the Arts Tomorrow's Company Lecture, Given by the Management Consultant in London
Kennedy, Allan, The Independent (London, England)
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. …