Thursday, September 6, 2007

Creating Shareholder Value

I meet a lot of CEOs as I travel the world for Saatchi & Saatchi. Most of them are just like you and me, except somewhat more stressed. Many of them have worked very hard to get to the top and now find they don’t enjoy life as much as they used to. I believe that much of the reason for this can be put at the door of Sarbanes-Oxley and the total, almost irresponsible, focus on short-term share price. Sarbanes-Oxley has turned out to be the proverbial mega-hammer being used to crack a peanut - it’s cost intensive, non-competitive and major overkill. Couple this with the absolute religion of quarterly reporting and you get a stressful, short-term situation where imagination, innovation, fun and passion are squeezed out. And worse, they are replaced by a functional bureaucracy which focuses more on reporting and messaging than innovating and building. It is a situation that disadvantages U.S. companies internationally and acts as a major start-up deterrent.

This total focus on short-term results and short-term shareholder value has got out of hand. Many CEOs are now actively looking to private equity, though not to make money or enrich themselves. It is simply to take away short-term external pressure so they can actually focus on creating long-term value for stakeholders. I’ve always been suspicious of the exclusive focus on creating shareholder value. My view of the eternal triangle incorporating employees, customers and shareholders, is that it’s employees that matter most. If you can unleash and inspire employees to drive together, you will create loyalty beyond reason from customers. Inspired employees will give customers things they never dreamed possible. If you do this, customers will buy more, revenues will increase, and over time so will shareholder value. Bob Seelert, our Chairman at Saatchi & Saatchi, often talks about starting with the answer and working back. To me the answer is inspiring employees to delight customers. Believe me, increased share value will follow. Or, to paraphrase Bob, start with your employees and work back.


Susan Plunkett said...

I'm somewhat cheered by that comment of Bob's tho I see it as a zooming in and a zooming out back and forwards. You come to intuitively know the answer and then work backwards - however within the intuitive knowing knowledge has generally developed (albeit sometimes it may be knowledge accrued over many years that suddenly makes a conceptual sense in a particular direction).

I'm confused about the private equity comment and not making money or enrich[ing] themselves. I'm not however that au fait with these matters. I also have no personal experience with SO however I had asked someone about this several months ago after seeing it come up so regularly on job descriptions. Their comments paralleled yours Kevin and my brief investigation led me to also perceive over-kill and lack of faith [in your own business and staff expertise].

You don't think Kevin that in concert with unleashing and inspiring employees to further revenue that inspiring customers to talk, engage and respond is also an important factor? I know you are talking in loose business model terms however I would have included this element within that - if for no other reason that customers can lead staff to feel better about what they do and the importance of their roles. Ad hoc and unexpected warmth and positive feedback can count for a lot in our world I believe.

I am a great believer as you know in taking Lovemarks back to the business (and hoping management DO pass it on).

As for CEO's being more stressed than the rest of us. In the main I have to agree however, if you are a parent of 3 kiddies and have four days to go before being paid and only $25 on you for groceries and have to consider how to make that stretch - AND you've got a strong moral conscience - that's pretty stressful.

All that said, I like locating the person within the role and one good thing about getting older is that you do see issues of common connectivity and that successful people often have the same overall concerns as you do and the same needs to be liked and given positives. It's just [traditional] role training that sometimes suggests otherwise.

mattw said...

In this day and age if a business is successful enough to last several years it has found a niche which I tell you is not an easy thing to do. If there is an identified niche and revenue that can be generated by a product or service alone, it is then up to the employees and management to take it to the next level. The issue of finding quality people then turns into finding more to add to the team which only becomes harder and more time consuming.

You'll sometimes see the great classifieds coming out of Silicon Valley "Product Evangelist Needed", which is actually a highly regarded trait or now even factual position in the tech world. It's a funny concept that someone would hold the title of evangelist whether is was acknowledged on your business card or or only at the conversations at the water cooler.

In the early days when I was just starting out, I used to wonder as I drove arond town looking at the buildings and the trucks with the brand names on the sides and would think how amazing that business is to have found a niche big enough to create the revenue to lease that truck or that building. Now as I found out how important good people are to an enterprise, I wonder about where did they found that truck driver, how trained and proficient is he and what experience he brought to that position. I'm using the truck driver as a metaphor, I'm not in the transportation business, but it's a good model when you meet a client for the first time or meet some potential contractors, I find myself thinking these thoughts now that I have the revenue niche figured out.

I like the idea of finding the answer and working backwards, that is unique approach and an interesting concept.

Susan Plunkett said...

mattw. One things I advocate is to realise that adding to the team isn't an issue of adding clones. I suspect most corporations are moving past the "must be a team player" to "we embrace your individuality tho you need to work within and be oriented towards team goals". There is a difference between those that I think certain corporations are now understanding.

But to better value add to your point am example. An Australian city council was needing to hire a sign writer. They set up an interview panel and adopted what was then the merit selection approach (which to my mind is only as good as the panel that interprets this). The majority of the panel were bent on hiring a person who spoke very well at interview and offered all the latest buzz words and jargon. One panel member however was intent on another selection; a young man who faltered through answers and was shy and somewhat withdrawn. This panel member refused to budge and insisted that both applicants be taken out to the workshop and given a 'test'. In the end, who was hired?

If you understand the essential nature of a job and don't always work in business layers theoreticals you generally conduct better interviews. Hiring a driver and he has his own truck? Go and look at it. Is it schmick clean, tyres all pretty sound and the engine is clean? The guy looks after his property and will be likely to look after yours and so on. Talk truck stops and long haul and risk management (load weights etc).

I've really welcomed observing how Kevin has given people a chance (e.g. sports people) by questioning and pressing them and seeing who they are.

Observation and allowing time for examples of work (and moving away from total reliance on CV's and interviews) has to be a good thing.

Allison said...

Hi Kevin

How sad it is to read about so many CEO’s being highly stressed. The quality of life scale must become out of balance at that level. Short term focus on share prices appears to be really squeezing the life out of vibrant businesses/people. Are the leaders so powerless to stand up to such bullying? This sort of thing must undermine self esteem of some very valuable people and it is sad to read they are being placed in such circumstances. How can these organizations let their people know their organization cares about them with this kind of thing happening?

I believe in empowerment of each employee at every level of an organisation, to learn, share, and expand on their strengths and abilities. I see little point in having an organisation if this is not at least being attempted. To me it is about the human experience, not the share portfolio, or the dollars around the coffin, or in a bank account that you no longer will have access to when you go.

Best wishes
Allison NZ

Kevin Roberts said...

MattW and Susan - Choosing employees is a little like selecting a rugby team. You have a group of people, each with specialist skills and areas of expertise but they must be able to work together as 'one'. It's no good having superstars in one area if there is a weakness in another.

Susan Plunkett said...

Kevin, I absolutely agree. My intention was to underscore the fact that not everyone contributes in the same way. Your parallel to a rugby team is important in the sense of underscoring that all players share similar orientations and values etc.

There are of course the massage people, the ball boys, the coaches, the people who wash the uniforms and so on. All with similar orientations - all with the same love and horizon as the 'aim' - just contributing differently and sometimes more independently than the core focused group.

I believe we're on the same page :)

Kempton said...

Hi Kevin, I agree that the companies' total focus on short-term results and share prices are irresponsible (and I would say unwise). At the same time, I have to respectfully disagree with what I interpret of your view on SOX. To regain the trust lost from the public resulted from the Enron, WorldCom, and Tyco scandals, the overkill mega-hammer might have been what was needed at the time to turn things around.

"When asked about how regulations such as Sarbanes-Oxley affect his company, Buffet replied, "It's costs us a good many millions of dollars...there are real dollars involved.' But Buffett added that regulation might be a good thing in order to restore investor confidence after the scandals of the past decade."
Enron: The Smartest Guys in the Room
This is a great doc.

Mary said...

Kevin, finally someone is speaking common sense about focusing on long term value rather than short term results. Congratulations for saying what I have been thinking for years.
Mary d'Eon