Monkeys in silk suits

By Bill Waddell via Manufacturing Leadership Center   Article

Maximization of Stakeholder Value in Practice

“I often wrote about the lean principles of focusing on all of the stakeholders, rather than abusing some of them for the sake of the shareholders – a la GM borrowing money to pay dividends while laying off employees.  This is not some socialist principle that belittles the importance of capital.  No, it is driven by the common sense point that the stockholders gain the most in the long term when everyone contributing to the business shares their long term objectives.  The problem with the ‘maximize shareholder value’ principle is that it has no time frame perspective, which generally means maximize short term shareholder value because the investment community has a hard time seeing beyond three months into the future. …

More companies should look to the Progressive Insurance approach to this issue.  They have a formula that is well publicized in advance for calculating the annual dividend stockholders will receive – if any.  Then they use the exact same formula to calculate employee bonuses.

I don’t know anything about the insurance business but it’s a safe bet it is a lot like manufacturing in that there are likely to be plenty of accounting tricks available to dress monkeys in silk suits – they can make mediocre, or even lousy performance look good by playing games with the numbers.  The cool thing about Progressive is that, if they choose to play such games, employees benefit to precisely the same degree as Wall Street.  Everyone wins, or everyone loses.”

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