The Runaway Train of Shareholder Value

The runaway train of shareholder value is nearing the end of the line. Companies must slow down and look toward climate and social upheaval.

May 2022 | Strategy

New business reality

The way we have done business for the last 40 years will end, like it or not. Our obsession with growth – powered by the economic policies of Thatcher and Reagan – has brought us a long way. But hard truths will soon derail the runaway train of shareholder value.

This is no left-wing, anti-capitalist rant. The environments in which every company operates are forcing a new reality for business. It is not possible to bargain with this reality. Nor is it possible to navigate it with yesterday’s strategies.

Leaders may ignore outside changes and continue with business as usual. But, money will be harder and harder to make this way. In two to five years their companies will fail.

Two shifts are closing down old routes to wealth. First, the world can no longer yield the natural resources that fuelled past economic growth. The cost to the climate – and thus to human well-being – of further extraction is too high.

Second, the man-made world is struggling. Rampant consumerism – the source of corporate profit – has brought unhealthy lifestyles and stress. Society faces dangerous inequalities, political chaos and rising instability. Built to serve corporate ends, technology will exacerbate these problems.

No place to hide

Society and the planet are in disarray. No business is insulated: all companies shape, and depend upon, both social and natural ecosystems. Shareholders, customers and regulators see more plainly than ever how business affects quality of life.

Directors can no longer bury their heads in the sand. Society is ruthless, already calling upon executives to fix the damage of past strategies and lessen new threats.

Corporate Social Responsibility (CSR) is not enough. Tub-thumping about brand purpose is not enough. Values pasted on head-office walls are not enough. Cutting plastic from the canteen is not enough.

Businesses no longer operate behind closed doors. If, despite brand rhetoric, companies continue to make money at a cost that is seen as unacceptable, the world surely will cry foul. Social media and an excitable press will hold individual leaders to account.

Before it is too late

Solving climate and societal threats must sit alongside wealth creation. New strategic goals are needed. Boards and executive teams that ignore this reality will watch as their companies are strangled by regulators and deserted by customers.

The required manoeuvre is tough; it demands imagination, skill and commitment. Courage is needed, and not every company or business leader will make it.

The clock is ticking. Now is chance to leap from the runaway train – before it is too late; for companies, and for the world we live in.

Image Mathew Schwartz | Unsplash

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