Customer-driven capitalism
Modern capitalism can be broken down into two major eras.
The first, managerial capitalism, began in 1932 and was defined by the then radical notion that firms ought to have professional management.
The second, shareholder value capitalism, began in 1976. Its governing premise is that the purpose of every corporation should be to maximize shareholders’ wealth. If firms pursue this goal, the thinking goes, both shareholders and society will benefit.
This is a tragically flawed premise, and it is time we abandoned it and made the shift to a third era: customer-driven capitalism.
…owners were getting short shrift from professional managers, who enhanced their own financial well-being rather than that of the shareholders. This was bad for shareholders and wasteful for the economy, Jensen and Meckling argued; the managers were squandering corporate and societal resources to feather their own nests.
Their critique ushered in the current era of capitalism, as CEOs quickly saw the need to swear allegiance to “maximizing shareholder value.” Boards of directors soon came to view their job as aligning the interests of senior management with those of shareholders through the use of stock-based compensation. No longer would the shareholder be abused—the shareholder would be king
- Roger Martin
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(Source: hbr.org)
