You may say this is a broken system, and for many B2C companies it can be. This is why I think that the benefit corporations are quite possibly one of the single best things to happen to corporate business in almost a century.
It allows a company to focus on a mission statement, and protects it from shareholders who only want to focus on profits.
EDIT:
TL;DR from Wikipedia for the lazier of us:
In the United States, a benefit corporation or B-corporation is a type of for-profit corporate entity, legislated in 28 U.S. states, that includes positive impact on society and the environment in addition to profit as its legally defined goals. B corps differ from traditional corporations in purpose, accountability, and transparency, but not in taxation.
* Etsy https://www.etsy.com/about/
* Patagonia http://www.patagonia.com/us/patagonia.go?assetid=68413
* Seventh Generation http://www.seventhgeneration.com/responsibility/certificatio...
* Warby Parker https://www.warbyparker.com/culture
By the way, they have a lovely FAQ:
"How did Etsy get its name?
The true origin of the word “Etsy” is a mystery known only to our founders. If someone asks you where the name came from, just make something up. That’s what we do."
The real point is that shareholders can't force the company out of general compliance. Meanwhile, managers retain considerable latitude in determining how they will remain in compliance as the company grows and evolves.
As long as founders and managers run a profitable company within these parameters, they - and their investors - will be fine. Indeed, they can, in theory, pursue the kinds of opportunities that companies totally beholden to growing their quarterly returns have to pass up. What they don't have to deal with is some short-term "investors" who want to extract a large hit of quick cash before leaving the smouldering ruin of a once-decent brand in their wake.
[0] - I mean "greedy" in CS terms, without attaching moral baggage to the word.
I don't have any real data on this but I've got a hypothesis that once a firm misses earnings a few times they "get serious", lay people off, and get rid of parts of the culture that made the firm great in an effort to expand margins for shareholders and say, "Look! See? We're getting better!". This really creates a toxic culture that causes a negative feedback loop and makes it even harder to be an innovative firm that grows like shareholders want.
This is probably a huge challenge for firms that do have excess employees, or need to change their employees to pivot strategies, and it would seem to be hard to do this without inducing the aforementioned effects.
Too often I see people lump shareholders into one group, as though they're all the same.
You can focus on long-term shareholders, or you can focus on short-term shareholders - IBM chose the latter, and as usual they're paying the price for it in expectations (and those shareholders will be nowhere to be found if the stock erodes later).
Berkshire Hathaway, as an example, chose the former. Buffett carefully cultivated very long term shareholders.
To say that Buffett is concerned with creating shareholder value (he is), means something different than to say that IBM is focused on creating shareholder value (they are) - because they have different types of shareholders, and go about it differently.
Jeff Bezos has talked about this concept a few times in relation to Amazon. He'd rather short-term shareholders just move along to the next stock.
Beyond a certain social level failure no longer counts against you. But income certainly counts for you.
So there's a small but unrealistically influential group who can hop from consultancy to executive job to consultancy. They're never held to account in the same way that employees of lower social status are.
Shareholders have no incentive to support a company either. They can sell up at the first sniff of a difficult quarter and look for higher returns elsewhere.
>Long-term growth is secondary to this goal.
Not always, but CEOs need to inspire investors with confidence and charisma to keep them from selling up.
Sometimes this works, but it's rarely related to the actual commercial value of a strategy.
Basically it's all about perceived status and social signalling, not about objective ability.
That disconnect is the big failure. It means the wrong things get rewarded for the wrong reasons, collective and strategic intelligence happens by exception, not by design, and the economy as a whole suffers badly.
A company can choose to be focused on creating long-term value, and many don't get punished for that either - see: Tesla, Amazon.
The most successful examples are of long-term value creation, not short-term. The best returns to shareholders come from long-term value creation and focus.
I'm sceptical this will ever happen with Amazon.
I dread the day Amazon will start running significant profits...
The exact opposite is the case. Shareholders are being extraordinarily patient with Amazon, and Amazon is being rewarded for their long-term thinking with an immense valuation.
However, good luck when the shareholders sue you to try to recover their loses. That's the real meaning of that threat.
http://www.washingtonpost.com/opinions/harold-meyerson-the-m...
Until they are ready to cash out, which might be as soon as a year away. It needs to be redesigned with long-term incentives in mind.
Because it seems that generally isn't correct as viewed by the law (i'm not a lawyer blah blah...).