How to measure business success by social impact, not stock price

When I was in business school in the early 2000s, there was no question of how to measure business success — and little if any talk of social impact. The most powerful idea I learned in my first year was that the sole purpose of a corporation is to make money for the shareholders. 

You have to understand that for me, with my background as a left-leaning clinical psychologist, this proposition was shocking. But I recognized that it was fundamental to how most businesses and business leaders operated.

So today, I’m flabbergasted. On August 19, the elite group of U.S. CEOs that form the Business Roundtable announced that big corporations should no longer focus exclusively on maximizing profits for their shareholders. Jamie Dimon, the chair of the Business Roundtable and CEO of JPMorgan Chase, presented a statement that business leaders should focus on delivering value to all their stakeholders — to customers, employees, suppliers, and local communities, as well as shareholders.

A radical departure on how to measure business success 

Sure, there have always been “mission-driven” companies. These for-profit corporations ascribe to values and objectives other than maximizing shareholder value. For some, the mission is a serious and central focus for how they do business. For others, it is superficial branding. But this business model has been the exception, not the rule.

Critics have already raised some serious questions about the Business Roundtable’s statement. Will shareholders continue to invest in companies that do not put their interests first? Is it the job of corporations to protect the interests of the community, or is that the government’s role? Will this approach dilute business leaders’ accountability to the shareholders?

How do you measure social impact?

My main question is this: How are the CEOs going to measure these new dimensions of success?  It’s easy to measure shareholder value. You watch the stock price. If the CEOs really want to change the priorities of their companies, they will have to develop and pay attention to new metrics. 

I learned about that in business school, too. My accounting professor, Murray Bryant, taught us that what you measure and how you tie those metrics to compensation powerfully affects how people do their jobs. For example, if you measure and reward individual results, people will compete, not collaborate. But if you measure and reward team results, you will see much more collaborative behavior.

Watch what the CEOs do about measuring their companies’ success. If they focus solely on stock price, then their statement was just window-dressing. They and their companies will continue to emphasize short-term shareholder value above all else. But if their quarterly reports and analyst calls start highlighting other measures, then perhaps they really mean to change the game. 

It should be interesting. 

Do you want to balance doing well with doing right? Email me at ggolden@gailgoldenconsulting.com to discuss what success might look like.