Public companies are too often out of alignment


This post is by Seth Godin from Seth's Blog


The public markets can offer a company quite a bit: Cash right now. Liquidity for the future. A currency to help recruiting and retention.

And public companies come with a giant caveat: They are owned by people (the shareholders) who might sell out at any moment. And new ones can take their place in an instant.

This flexible ownership is part of the attraction of the stock market, but it also means that you can’t count on the people and institutions that own your organization taking a long-term view. (Long-term for them might even be a week in the future).

As a result, the others that the organization seeks to serve: The environment, their customers, the employees, the culture… often lose out. Because thanks to Milton Friedman’s mythology, the primacy of the shareholder (the one who drives the stock price, the very stock price that drives management) means that every time these companies seek to serve one of their other constituents, they have to do a sort of dance, explaining to shareholders why, after all, really and truly, what they’re actually doing is serving the shareholders. Not just serving them, serving them right now.

And, thanks to the short-term interests of many people who trade stocks, there’s pressure to own shares that go up the most today, not a company you’re proud to own for the long run.

Sometimes, the enlightened and powerful leadership of a company is able to ignore the whining of the shareholders. If you don’t like (Read more...)