A New Way To Think

Is maximizing shareholder value really the best path to corporate success? This book suggests putting customers first leads to sustainable growth.

1. The Evolution of Capitalism: From Management to Shareholders

Corporate focus has shifted over decades. In the 1930s, managerial capitalism encouraged companies to prioritize professional management, ensuring strong internal processes and proper leadership. By the late 20th century, shareholder capitalism gained traction, advocating profits as the main corporate goal.

This shift drastically influenced corporate strategies. The idea was simple—if shareholders benefit, companies grow stronger. However, evidence suggests otherwise. Modern companies often see share prices fluctuate due to overpromised results, short-term profit strategies, and unmet expectations.

Economic data supports this claim. Despite prioritizing shareholder gains since the 1970s, long-term earnings growth has stagnated. This challenges the assumption that catering solely to shareholders ensures prosperity.

Examples

• After 1976, many corporations switched to profit-focused strategies, yet their stock values underperformed expectations.
• Companies prioritizing shareholders often experience dramatic stock market corrections after failing to meet overly ambitious goals.
• Managerial capitalism, as seen in the pre-shareholder era, led to more stable long-term business growth.

2. The Customer-First Philosophy

Shifting focus to customers does not mean disregarding profits—it means aligning business actions with their needs. Customers remain the foundation of any successful enterprise, and catering to them strengthens loyalty and growth.

By listening to what customers need, businesses build loyalty and trust. This adds value organically and leads to sustainable success. When customers are satisfied, they'll stay, recommend, and ultimately contribute to the business’s long-term financial health.

Companies that prioritize customer satisfaction often outperform others. A customer-centric approach builds goodwill, stabilizing cash flow and even impressing shareholders over the long term.

Examples

• Johnson & Johnson famously put customer welfare at the forefront of its strategies, strengthening its brand.
• Brands like Apple constantly evolve their products based on how customers interact with them.
• Amazon prioritizes fast delivery and customer experience, leading to consistent growth.

3. The Stock Market's Misleading Nature

While stock prices are important, they’re often laden with speculation. Businesses might get swayed by the market's daily highs and lows, forgetting their larger missions. This often results in hasty decisions that harm long-term goals.

A fluctuating stock market creates pressure on organizations to deliver quick wins, often at the expense of meaningful progress. When this happens, employees lose direction, products lose purpose, and shareholder returns ultimately fall.

Place focus back on creating value rather than beating stock price expectations. Companies like Unilever resisted such pressures and reaped rewards by investing in sustainable business practices rather than chasing short-term gains.

Examples

• Company boards often tie CEO bonuses to short-term stock performance instead of actual business growth.
• Retail investors' reactions often exaggerate stock price volatility, further stressing corporate strategies.
• Unilever's strategic focus on sustainability increased shares by 266% over a decade.

4. Aligning CEO Compensation with Long-Term Growth

Often, CEO payment structures fixate on stock-based rewards. This practice incentivizes short-term decisions to inflate stock prices, rather than genuine progress. Fixing this requires tying compensation to long-term success metrics.

When CEOs align their visions with the company’s long-term trajectory, they’re better positioned to innovate and grow sustainably. This will not only resist short-term temptations but foster robust structural foundations.

Companies like Unilever have had exceptional success encouraging CEOs to think bigger and smarter by aligning their financial incentives with long-term success goals.

Examples

• Paul Polman’s Unilever tenure avoided quarterly shareholder expectations, instead focusing on sustainable growth.
• Patagonia ties executive goals to the company’s eco-ethical objectives rather than immediate sales.
• Certain organizations exclude share prices from CEO bonuses to encourage broader strategies.

5. Building Authentic Brand Loyalty

Brand loyalty grows when customers feel valued. Satisfied customers bring friends and family to the business, ensuring consistent streams of income and positive awareness for the company.

Successful companies invest heavily in understanding customers and delivering products or experiences tailored to them. This ensures that the business doesn't just attract buyers but retains them.

Repeated examples show how brand-focused strategies not only help consumer satisfaction but also encourage long-term profitability, rather than chasing quick wins.

Examples

• Disney creates memorable experiences around customer desires, leading families to return for generations.
• Starbucks focuses on personalization, from your name on a cup to your favorite drink.
• Automakers like Tesla thrive on customer affinity and word-of-mouth referrals.

6. Confidence Over Short-Term Gains

Focusing too much on short-term financial successes often leaves companies scrambling to deliver results, sacrificing strategy. Confidence in the long game is valuable.

Companies need to prioritize investments in innovations, branding, and customer service over fast results. While profit dips in the short run, this strategy ensures robust growth in the long term.

Businesses like Microsoft and Amazon invest heavily in development and customer offerings to fuel their long-term profitability and global appeal.

Examples

• Microsoft revitalized itself by focusing on cloud services and innovation during slower years.
• Amazon Web Services (AWS) prioritizes reinvestment in tech infrastructure rather than short-term profit reporting.
• Netflix prioritized content creation early, leading to dominant market positioning years later.

7. Avoiding Investor Pressures

Investors often push businesses toward aggressive actions and profit maximization. Companies need to filter out non-constructive expectations and clearly communicate their long-term priorities.

Effective communication assures investors about a company’s mission, keeping relations calm and productive. Strategic transparency also prevents harmful speculation, stock selloffs, or loss of stakeholder trust.

Consistent focus on customer priorities fosters investor confidence, as financial gains come naturally from happy, loyal customers.

Examples

• Google focuses less on Wall Street guidance, retaining autonomy for research and development.
• Alphabet publicly separates its ventures into core, experimental categories, assuring investors about financial sustainability.
• Companies like Patagonia prioritize ethical stances while clearly stating projected consequences upfront.

8. A Competitive Edge through Customer Loyalty

Businesses thrive when they can outdo competitors by consistently meeting customer expectations. When customer-first thinking becomes the norm, companies attain a robust advantage over rivals who prioritize quick profits.

Focusing on customer loyalty allows businesses to persist through downturns, as devoted clients provide a reliable revenue base. This not only strengthens the enterprise long-term but increases appeal to new market entrants.

Firms like Costco and IKEA prove that consistent attention to user satisfaction boosts retention while solidifying the brand.

Examples

• Costco’s membership strategy reinforces ongoing customer relationships while maintaining value perceptions.
• IKEA’s thoughtful pricing keeps middle-class customers returning, even during recessions.
• Tesla finds loyalty due to its customer focus, despite traditional automakers’ efforts to compete.

9. Reimagining Corporate Goals

Redefining corporate success holistically changes the game. Businesses long conditioned to chase investors must find new metrics that measure growth, stability, and impact rather than inflated share prices.

This idea pushes companies away from thinking exclusively about fiscal returns. By focusing on mutual growth—both customers and companies—organizations create enduring value for all stakeholders, including investors.

A change in approach benefits shareholders, too, as they eventually realize consistent returns from loyal customers and continuous business operations.

Examples

• Johnson & Johnson builds trust beyond profits, preserving its global reputation.
• Patagonia balances people, planet, and profits, earning long-term customer loyalty.
• Starbucks pursues customer-first innovations like mobile ordering, outpacing competitors.

Takeaways

1. Shift focus from shareholders to customers by investing in long-term value creation like product innovation and quality improvement.
2. Align executive compensation with long-term business objectives, discouraging short-term stock price manipulation.
3. Recognize the limits of the stock market as a growth measure and prioritize sustainable, customer-driven strategies.