In the past 25 years, CEOs of many major corporations have relied on a flawed set of beliefs to lead their organisations. This set has influenced them to place way too much emphasis on maximizing shareholder value and not enough on generating value for society. Today we are mired in the Great Recession, which was brought about by the near collapse of the financial system. This environment and the behaviour produced by the prevailing set of beliefs to which CEOs subscribe have deepened a widespread public distrust of corporations and capitalism.
In this blog post, I will offer a new set of beliefs, which can renew and restore faith in corporations and capitalism.
The Conventional Wisdom
Most CEOs and corporate board members would agree that the theories and beliefs listed below drive their decision-making on how best to meet the challenges they face:
- The focus of the CEO and the board should be on maximizing shareholder value.
- The stock market is short-term-oriented.
- Stock-based incentive compensation aligns the self-interest of management with shareholders, and a performance-based pay system increases employee motivation.
- Societal concerns should be addressed through corporate social responsibility programs.
- The “best athlete” from inside or outside the company should be chosen as the successor to the CEO.
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