'Short-termism' is the enemy
| | |  | Early this century, "shareholder value" had become a kind of religion, and like all religions it had its heresies. One was the idea that companies create shareholder value by maximizing short-term profits. That illusion gave rise to the 2007–08 financial crisis and the resulting Great Recession. Some academics and even business leaders then embraced another too-simple idea: that companies should aim to serve the interests of all stakeholders, including customers, suppliers, and communities. In 2015, a McKinsey team wrote an article evaluating these claims. Its conclusions will always be important and might soon become essential.
McKinsey partner Tim Koller and his coauthors agreed that most companies create long-term value for shareholders only by satisfying other stakeholders too. But they argued that the debate had muddied a more basic truth: creating shareholder value doesn't mean maximizing short-term profits, and companies that confuse the two threaten the interests of shareholders and stakeholders alike. Since the real problem is "short-termism," companies need a broader definition of shareholder value, not a vague stakeholder agenda that tries to reconcile interests that may not always be aligned.
Our classic "The real business of business" makes the case for this. | |  | | | | |
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