Replacing the 'dumbest idea in the world' - FT.com Page 1 of 2 FINANCIAL TIMES Home UK World Companies Markets Global Economy Columnists Analysis Opinion The A-List Editorial Blogs Letters Lex Comment Management Corrections Obituaries Personal Finance Life & Arts Tools April 12, 2010 8:47 pm Replacing the 'dumbest idea in the world' By Michael Skapinker Business leaders are upending the nostrums of 30 years nother hearing, another round of self-criticism from finance's fallen functionaries. "I can only say that I'm deeply sorry," Chuck A Prince, former chief executive of Citigroup, told the US Financial Crisis Inquiry Commission last week. Robert Rubin, a former Citigroup director, said he too was full of regret. It is all very well being sorry, but what is to be done? In the search for a way forward, business leaders are upending the nostrums of 30 years - particularly the relentless focus on shareholder return. Richard Lambert, director-general of the CBI, the British employers' group (and a former editor of this newspaper), suggested in a recent speech that "what you might call Jack Welch capitalism" was drawing to a close - a reference to the former General Electric chief executive's championing of shareholder value. Mr Welch actually got his renunciation in first, last year calling shareholder value "the dumbest idea in the world". He added: "Shareholder value is a result, not a strategy ... Your main constituencies are your employees, your customers and your products." In an FT interview this month, Paul Polman, Unilever chief executive, said the same. "I do not work for the shareholder, to be honest; I work for the consumer, the customer. I discovered a long time ago that if I focus on ... the long term to improve the lives of consumers and customers all over the world, the business results will come." I am sure these leaders did not mean shareholders did not matter; rather that they were best served by businesses that performed well over the years. That meant selling goods and services to customers who were happy to come back, and employing staff committed enough to encourage them to do so. Doing that, and doing it profitably, would, over the years, be reflected in the share price. The problem has been the rise of shareholders who are not prepared to wait years, but who want a return now, so that they can sell their shares and repeat the trick elsewhere. Mr Lambert referred to some of the old UK building societies, such as Northern Rock, Halifax and Bradford & Bingley. "They decided to cash in the equity that had been built up over generations, and to maximise value for their new shareholders - with the results that we all know about," he said. Before we consign the shareholder value movement to the dustbin, it is worth remembering why it arose: to prevent chief executives from running businesses in their own interests rather than those of the companies' owners. To prevent this, top executives' remuneration was structured to