How Maximizing Shareholder Value Can Bury Your Business


Roger Martin, co-author of Playing to Win, holds the unexpected view that "setting as your goal the maximization of shareholder value is a bad idea." Why would this be the case, especially when many companies expressly state that one of their major goals is to benefit the stockholders? Because, as Martin explains, "Setting it as your goal makes it less likely that you will maximize shareholder value." This certainly sounds counterintuitive. However, the reasoning behind Martin's statements is that companies need to focus on customer satisfaction first, and they also need to maintain and nurture employee morale. Both of these goals are complicated when customers and/or employees hear how they aren't as important as the shareholders. Furthermore, he says by making the customer "deliriously happy," sales will naturally increase -- and also, inevitably, will share prices.

See more in the following video.

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To watch the full interview with Roger Martin, click here.

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Brendan Byrnes has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Google, Starbucks, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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