A company CEO must balance a variety of different and often conflicting groups including investors, workers and customers. Activist investors are now a growing concern. Focusing on the wrong group, or just one group can leave the company unbalanced and weaker.
The question is, if there are that many different groups all demanding attention, which should a CEO focus on?
This seems to be one of the most important questions every CEO must focus on today as investor activists raise their voices and make increasing demands. My take is simple. If an investor is not happy with the management of a company, they should simply leave and find a company and management team they are happy with.
Serving Multiple Masters
Investors, while very important, should not drive the direction of a company. If a company fails because of bad decisions, then it should be allowed to fail. However if a company succeeds because of good decisions, then they should be allowed to revel in their success and prepare for their future.
Activist investors can play a role, however they don’t belong in the driver's seat. All they do is take the eyes of the management team off the real threats and opportunities and put the company at risk.
Years ago, I learned an important answer to the question of what a CEO should focus on from Herb Kelleher, former CEO and co-founder of Southwest Airlines (LUV) . He said the worker should be the top priority, followed by the customer and finally the investor.
That sounds backwards if we continue to focus on the shareholder activism, which seems to been growing stronger in recent years. However, Kelleher’s focus is the only true path to long-term success.
While I respect the success of investor activists, they represent a real long-term threat to a company trying to squeeze out short-term profits.
Companies, who first focus on the investor, often search for short-term ways to increase the stock price. This rewards the investor in the short term, but longer term, it can ravage the company and its competitive position.
Companies, who focus on the customer, can have happy customers with regards to the product, but often the workers have a sour taste in their mouth, which can spoil the relationship with the customer. So this should not be the primary focus either.
Companies, who first focus on the worker, create a happier and warmer workforce and environment. This is key. When the worker is treated with respect and they feel important to the success of the company, they try harder to help the company get better and stronger in the marketplace.
When giving speeches to groups of executives and workers, this is part of the message I like to offer. And this part always generates excitement and applause. On one hand it could because the audience is the workforce, but it’s also an obvious key to success that many companies simply ignore.
Defining a Successful Company
I’m sure if you think about it, you will come to the same conclusion. There are so many companies out there today. Some are very successful while others struggle. Why are they not all successful? That’s what a company should be focused on. Not the battle with investors.
Investors shouldn’t try and steer the ship. The CEO knows the delicate balance that must be achieved to make sure every different group wins. Investors are just one of those groups.
CEOs must focus on long-term success and growth. They must focus on the right things first and that will vastly improve the chances for great success in the long term.
So CEOs, take a lesson from Kelleher, focus on the workers first, then the customers, then the investors.
Equities.com columnist Jeff Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst and consultant. He shares thoughts on the changing industry, which he's been following for 25 years. He follows what's hot, what's not, why and what's coming next. Email him at jeff@jeffKAGAN.com.
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