Monday, April 9, 2012

Cultural implications of maximizing shareholder value

What happens to the workplace when managers focus solely on meeting share price targets?  This blogger thinks it causes managers to make stupid decisions that destroy the culture:

...If the company stock price were to hit a specified target and maintain it for a specified number of weeks, the CEO stood to gain serious remuneration. Sounded like a fine idea to me. He had to hit a target of perceived value and make it stick for a while. I'm sure the people who thought it up patted themselves on the back for it.  
Life on the ground began to deteriorate. A friend of mine was working in a part of the company that interfaced with customers. He was working with a great bunch of people, but the pressure somehow kept ratcheting up. He couldn't point to anything specific, but everybody started saying things like "We've just got to hit these deadlines and then we can relax a little." They hit those deadlines. Somehow, the crisis wasn't over. It actually got worse. By the time one crisis would end, the next was already in full swing. Then came the first wave of layoffs... 
Once the layoffs started, nobody complained about the new normal -- crisis time all the time. People started saying "We've got to hit these deadlines..." full stop. No one talked about relaxing in the future anymore. Eventually it became apparent that this new normal emanated from a high level personnel change intended to "improve the numbers," as I was told. Improve them it did. Their numbers were better than ever. Their lives were hell.  
The culture became unrecognizable. People started backstabbing, maligning each other sometimes in meetings. Other things happened to friends of mine -- things that would have seemed ludicrous just a year earlier. 
and this:
The company was so focused on small things like tax-deals that it had lost perspective on long term development. It was as if Company X were wearing blinders. This is exactly what research predicts.  
He goes on to discuss the candle experiment originally from Duncker's 1945 work on problem solving, and concludes that giving financial incentives to managers restricts their ability to think coherently and solve problems creatively, so they start making poor decisions to the detriment of everyone.

No comments:

Post a Comment