Gotta Serve Somebody — The Proper Balance of Duties in Business–and Project–Management

While traveling over the last couple of weeks I was struck by this article in the Wall Street Journal entitled: “Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices.”  The reporter of the article stated in a somewhat matter-of-fact manner that the reason for this behavior was the need for maximization of stockholder value.  Aside from the fact that, with the poorly vetted excuse mongering in the article about fewer opportunities for development and limitations on payments under healthcare, U.S. drugs tend to be significantly higher than generics found overseas, the assumption regarding maximizing stockholder value is misplaced.

As Steven Pearlstein pointed out in this Wonkblog piece back in 2013, maximizing shareholder’s value is not part of the fiduciary duties of the company nor its CEO.  Such a view is not supported in either tradition or law.  A corporation, as any Business 101 student will tell you, is an artificial person established for the purposes defined in its charter.  This charter is issued by the sovereign–in our case the sovereign consists of the citizens of the states that issue corporate charters through their representative governments.

As Pearlstein rightly points out:  “The fiduciary duty, in fact, is owed simply to the corporation, which is owned by no one, just as you and I are owned by no one — we are all “persons” in the eyes of the law. Shareholders, however, have a contractual claim to the “residual value” of the corporation once all its other obligations have been satisfied — and even then directors are given wide latitude to make whatever use of that residual value they choose, as long they’re not stealing it for themselves.”

The obligations of a company include not only shareholders but also customers, suppliers, and employees and others with whom the corporation establishes contractual relations.  What Pearlstein’s article also shows is that companies that take the position that customer and employee satisfaction comes first are those that maintain and grow market share for a sustained period of time.  This should be no surprise.  Short term management yields either short term results or total failure.  This instability due to the shift in marking for the market for stockholder value was reflected in the 2007-09 Great Recession, where companies with little ability to weather the storm found themselves on the rocks and shoals, and with angry customers and employees left in the lurch.

My question for my colleagues is always this:  are you in it for the long or short term?  If I get the latter answer then I say good luck to you, but we steer this ship on a different course.

The ramifications for project management probably make this conflict between the push for stockholder primacy against other co-equal interests more salient.  To the project manager, the primacy of the project is defined by its contractual line items that are designed to meet customer requirements and expectations.  Stockholders don’t deliver products and services.  Those who wish to extract resources prior to those needed to satisfy customer requirements and contractual commitments–and pay employees and subcontractors in those efforts–whether they know it or not, are, at best, engaging in bad business practices, and, at worst, are engaging in fraud.

Once again, this ship steers a different course.  Staying customer-focused is what has and will continue to win out at the end of the day.