Business Brains

Suggested mantra for capitalists of the new decade: Worry about your customers, first

Posting in Sustainability

By focusing first on what's best for the customer, businesses will get smarter for the shareholder.

Rather interesting essay over at the Harvard Business Review site proposing that we move away from the current flavor of "shareholder value" capitalism -- focused on the practice of managing to maximize share prices -- in favor of a new flavor, which the writer calls "customer-driven capitalism."

Before I go any further, let me apologize and disclose that you need to be a Harvard Business Review subscriber to read what's at this link OR you need to spend $6.50 like I did to purchase a single copy of the article. The piece is written by Roger Martin, Dean of the Rotman School of Management at the University of Toronto.

The piece called "The Age of Customer Capitalism" suggests that companies haven't done as well as they might have expected by putting shareholders first and making the advice of professional managers play fiddle. The article notes that returns from 1977 (when shareholder value became the big mantra in the business management world) to 1988 were about 5.9 percent per year, compared with returns of 7.6 percent from 1933 to 1976 when managers were left to manage pretty much as they thought best.

There is nothing to suggest, Martin writes, that demonstrates that a management philosophy focused on shareholder value first and foremost is in the best interest of shareholders. Instead, he believes that every company should have one primary aim (as Peter Drucker preached): acquiring and keeping customers. Decisions should be made to maximize this objective. In Martin's mind, there can be only one goal, one that he believes is eloquently and elegantly stated in the decades-old "credo" used to guide Johnson & Johnson, which is quoted in the Harvard Business article:

"We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. ... We are responsible to our employees, the men and women who work with us throughout the world. ... We are responsible to the communities in which we live and work and to the world community as well. ... Our final responsibility is to our stockholders. ... When we operate according to these principles, the stockholders should realize a fair return."

Powerful words indeed.

Martin's logic is that anyone thinking about what's best for the customer will inevitably have to look at ways to improve its operations, products and services, which in turn will create a sustainable business. Indeed, to me, this is just more evidence why corporate social responsibility and sustainability efforts should get extra consideration these days in the management suite -- even at the expense of near-term results.

I highly encourage you to study this article.

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Heather Clancy

Section Editor

Heather Clancy has written for United Press International, ZDNet, Entrepreneur, Fortune Small Business, the International Herald Tribune and the New York Times. She holds a degree from McGill University. She is based in New Jersey. Follow her on Twitter. Disclosure