Why dictating their role or purpose is presumptuous.
Imagine a stubble-bearded young consultant sitting opposite a Bill Gates, Steve Jobs, Anton Rupert or Henry Ford and trying to define a job description for him. Worse still, having the “suit” approach him with preconceived ideas about what the job description should look like and being armed with a clipboard with forms where boxes have to be ticked.
That scenario is not much less ludicrous than the assumption that the role or purpose of an entrepreneur is to maximise return for the shareholders. It is a bit like the staff of Moneyweb saying that the role of the sun is to provide them with light and heat. We have become used to what is often perceived as shareholder arrogance, basking in the concept of shareholder supremacy and the Holy Grail of shareholder value.
This view, and indeed the assumption that all shareholders are singularly focussed on maximum returns in the shortest time possible, ignores the fact that there is no single standard shareholder. Their involvement in companies and hence their behaviour and expectations can differ markedly between the single majority shareholder, shareholders directly involved in operations, institutional investors and many others. We also tend to forget that the shareholder value obsession, highly contaminated with short term thinking and speculative trading, has featured only in the past four decades or so and that great entrepreneurial achievements have flourished since long before then, often enough in highly socialist environments.
Good entrepreneurs will ensure good returns for investors. But that is not their job. Rather it is the job of a good investor and his advisors to identify and support good entrepreneurs in the pursuit of their visions and dreams. It was something that John Sculley, former CEO of Apple found out in the demotion/firing of Steve Jobs from Apple and the latter’s subsequent triumphant return. Sculley later confessed that he did not then understand the entrepreneurial mind-set, and wished he had. Forbes Magazine (see article here) quoted him as saying: “I didn’t appreciate, coming out of corporate America… what it meant to a founder, the creator of the Macintosh, to be asked to step down from the very division that he created to lead the very product that he believed was going to change the world.”
This is not to say that the entrepreneur, or what I have previously defined as the real creators and builders in business, do not have a duty to investors who have provided capital in good faith. The question is whether this ranks higher than the regard they have to have for customers, employees and society as a whole. It is completely unproductive to champion one over another, yet that is the very essence of the debate. So prioritise we do, and I have always championed customer supremacy. Those who say that the interests of all of the parties are synonymous do so mostly on outdated theory and are either out of touch with the economic reality of our times or are wilfully ignorant.
The Sculley/Jobs confrontation is an interesting case study of the difference between the entrepreneur and professional managers who today have become mostly the custodian of narrow shareholder interests. Given Jobs’ return to Apple and guiding it into becoming the world’s biggest company (more recently the second biggest by market capitalisation) it is easy to assume that Jobs won that confrontation outright.
But Forbes’ assessment is less harsh on Sculley, and concludes that without Jobs’ absence Apple would have been worse off. The pity was that the confrontation developed into something of a turf war with constant head butting that prevented some form of reconciling creative genius with a practical mindset.
Jobs’ treatment by the board, his return and the eventual ousting of Sculley himself, poses an interesting question of who shareholders should trust the most, the leader with entrepreneurial flair and societal and consumer market impact, or the professional executive singularly focused on increasing shareholder value. The view that the former can be replicated in the latter simply by dishing out a parcel of shares and offering remuneration equalling, if not sometimes exceeding the rewards of the former is patently misguided. For one thing, the remuneration criteria for executives are largely focused on shareholder value and maximum shareholder returns, and not on the criteria that excite most real entrepreneurs, creators and builders.
With entrepreneurial genius comes the courage, if not the right, to dictate to shareholders how the company should be run. As Liberty Founder Donald Gordon is reported to have once told a disgruntled shareholder: “I know better what to do with your money than you do! And if you disagree there are many in this audience who will be just too keen to buy your shares from you!”
Among all of the definitions of an entrepreneur, one will not find a remit to ensure maximum return on capital. A World Economic Forum report has defined entrepreneurship as “the pursuit of opportunities beyond the resources you currently control.” This fits in with my own understanding of an entrepreneur as being one who has the ability to look beyond immediate and guaranteed self-gain. That is what risk is about. Clearly that ability will be shackled by an absolute insistence on defined short term returns on capital.
Perhaps Time Magazine said it best some years ago: “The creating part of capitalism is the part that economic laws cannot explain. Like a code writer and his code, inspiration and dedication stand outside the system to which they are so crucial.”
In all of my experience with and reading about great business leaders, those entrepreneurs who not only made a huge difference to our lives, but also generated much wealth for themselves and those who invested in them, I have yet to come across one that professed to have been singularly and unambiguously driven by creating maximum shareholder value.
That happened in the pursuit of other far more exciting and meaningful things.