The roles and responsibilities of the CEO and the management team are to meet the expectations of shareholders… but that’s not all!
There is growing debate over the choice between short-term and strategic medium-term objectives, and many are the voices now calling for businesses to stop focusing solely on the short-term expectations of financial markets.
Letters written by Larry Fink, CEO of BlackRock (the world’s biggest investment fund) in 2015 and 2016 are perhaps the most striking example.
Despite all these good intentions, however, old habits die hard and we all know that “fine words” are not enough to bring about change.
The CEO and the management team are currently judged on the creation of short-term value for the shareholder. No one pays them or judges them on their creation of value for the two other key stakeholders: clients and employees. And yet these two are key to creating short-term value for the shareholder. It is vital to satisfy and retain the loyalty of existing clients, and this can only be achieved by satisfying and retaining key talents within the business. The link between these three stakeholders is clearly enunciated in Kaplan and Norton’s balanced scorecard concept. Sadly, the imminence of short-term deadlines (announcement of quarterly or annual financial results) on which management team bonuses and incentives are based can sometimes result in decisions geared solely to the short term (and hence to the associated bonuses and incentives).
Is such behavior really so reprehensible, though? Not really, in fact, as long as the choices made do not penalize the business in the medium term. This is the balance point for the CEO, who needs to find the balance between the three key stakeholders (shareholders, clients and employees), but must also strike a balance between short-term and medium-term objectives.
Satisfying today’s clients by motivating and earning the loyalty of key employees is a way of responding to shareholder expectations. Launching new products and new markets for the future by hiring or developing the skills needed to support them will satisfy the clients and shareholders of tomorrow.
In fact, any business would do well to strive for a better balance between the expectations of its three key stakeholders (shareholders, clients, employees) by formalizing its balanced scorecard and supplementing it with a SteerVision Center to guide responses to the expectations of today AND those of tomorrow. These two complementary tools must also be backed up by a change in the behavior of the management team (a change that can be implemented by experienced lead facilitators at this level of the organization) to ensure that the CEO is in a position to respond serenely to the expectations of the shareholders of today AND those of tomorrow.