Chief executives are under pressure to produce returns for shareholders – often at any cost.
Activist investors, who now manage some $174 billion in assets, have exploded onto the scene, shaking up boards and pushing for share repurchases, company breakups, or outright sales in order to get stock prices higher.
But the trade-off of this focus on shareholder value is spending that benefits other stakeholders, like employees and customers, said Bill George, the former CEO of medical-device company Medtronic.
Value has to be created for your customers and, in turn, your employees, George said in an interview with Marketplace’s Kai Ryssdal.
“If you do that,” he says, “you’ll have great value for your shareholders too.”
George, a Senior Fellow at Harvard Business School, blames the swing to put shareholders before anyone else on the distortion of money in the financial-services industry.
The real problem is that there’s just too much money being made on Wall Street. Last year, the top 25 hedge fund managers made $500 million average and the top 2 made a billion seven. There’s too high fees. The idea of getting 2% of a person’s funds plus 20% of the upside and not sharing in the downside is leading to a lot of short term distortion in the market and unnecessary short term pressures on CEOs.
Listen to the whole interview here: