This blog post is part of the HBR Online Forum The CEO’s Role in Fixing the System.
In an earlier blog post, I observed that CEOs seemed to be rewarded handsomely for downsizing and outsourcing, acquiring or merging, and making the quarter — all justified by the responsibility to maximise shareholder value. Any of these actions can be necessary in certain circumstances; most of us have taken one or another. The concern I expressed in the post was that these actions have become the standard by which CEOs are expected to manage.
Furthermore, these actions are taken seemingly without regard to the consequences for the community, the employees, the survival of the company as an institution, or the creation of long-term firm value. I offered an alternative set of beliefs, which I believe can renew and restore faith in corporations and capitalism.
In this blog, I will focus on the first two:
- Shareholders benefit most when CEOs and boards maximise value for society.
- Investors favourably receive projects with long-term payoffs, particularly those in research and development.
At Merck, the decisions of its leaders have been and still are guided by the modern-day founder George W. Merck’s well-known quote: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow…” As a research-driven company, investing in research and the continuity of investing is crucial for Merck’s success. But also crucial is a board of directors that largely shares these beliefs.
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