Corporate leaders aggressively pursue shareholder wealth creation. But companies that put more emphasis on profit are, in fact, less profitable
In my last two columns, I had described, first, the value of healthy scepticism among directors, and second, the importance of the methodical as against the mercurial. Another interesting concept is the principle of obliquity. Several years ago, I had read John Kay’s elegant and slim book, Obliquity, and Lynn Stout’s book, The Shareholder Value Myth.
Obliquity flashed in my mind as I read the book, Afterness, by former Hindustan Unilever chief Ashok Ganguly, though the book has no allusion to that term. Dr Ganguly states that he never dreamt of becoming a scientist, he never targeted how to rise in his corporate career, and he did not aim to serve as a scientific advisor to the Prime Minister. Yet, all these things happened in his life. He hints that if we focus diligently on doing what we need to do in our jobs, somebody else will manage our career and progress.
It could be that the employer company takes care, or that Lady Luck or God will be watchful. After we have run the course of our careers, the wisdom of obliquity dawns on us. Psephologists and economists realise how wrong their prediction models were, business leaders realise how misguided they were about the centrality of their own role in achievements, and politicians realise how much froth and blah they had deployed to seduce their voters. Professor Kay says that obliquity “describes the process of achieving complex objectives indirectly…. happiness is where you find it, not where you go in search of it.”
I used to serve on the board of Imperial Chemicals Industries (ICI) Ltd. ICI was regarded as the ideal employer for several decades, based on its goal to “serve customers through innovative and responsible application of chemistry and related science…… thereby the company would enhance the wealth and well-being of various stakeholders.” It is a grand example of obliquity. After the 1991 raid by Hanson Trust, ICI revised its commitment by stating that “it would enhance value for customers and shareholders through various means such as (a) and (b)….” Today, ICI does not exist. ICI created great value when it had sought shareholder value obliquely.
In Lynn Stout’s book referred to earlier, she argues, “…no law has ever required directors of public companies to maximize share price or shareholder wealth…” Quoting Jack Welch, she asserts that shareholder value is the dumbest idea in the world. If at all, is this credible? If true, why would so many corporate leaders aggressively pursue shareholder wealth creation? Too many managers believe that when you don’t seek something directly, you will never get it.
Jim Collins, the high priest of Good to Great and Built to Last fame, found in a study during the 1980s that Sony, which had stated that it “would eliminate undue profit-seeking”, outperformed Hewlett-Packard and Texas Instruments. Likewise, P&G outperformed Colgate, and Marriott outperformed Howard Johnson. In short, the company that put more emphasis on profit was less profitable in its financial performance. Touché.
Founder Jamsetji Tata never spoke of profit goals; rather, his enterprises “existed because of the community”. The total shareholder returns (TSR) of Tata as a group over a decade or more ranks at the top end of India’s corporate sector. Yet, how many financial papers write about long-term TSR?
Some may regard these ideas as alright for the past, but not for the 21st century. I recently researched Kotak Mahindra Bank. The bank states that “it would seek to provide an ethos of trust and to function as a single-window to every financial service in a customer’s universe… value creation rather than size will be the business driver.” Kotak Mahindra Bank ranks among the highest price-to-earnings multiples among all banks in the world. Contrast Kotak Bank’s obliquity with the more direct goals of the erstwhile Yes Bank.
Traditional Indian wisdom lies at the evergreen perimeter of philosophy. According to Jaya Row, the Bhagwat Gita offers a road map for success. A brilliantly eager student, who is desperate for success in the exams, suddenly goes blank. An outstanding sportsman fails because of his obsession for the trophy. A job aspirant anxious about the job fumbles in the interview. Dr Row concludes that “action is under your control, but the fruits are dependent on factors beyond your control…. fix an ideal beyond your selfish, self-centered interests.”
In literature too, in Pagol hoiya bonay bonay phiri, Rabindranath Tagore writes, “Whatever I seek is all by mistake, and whatever I get never satisfies me.”
Corporate chiefs, especially founders of start-ups, might reconsider the dubious value of corporate purpose statements such as, “Double the market capitalisation from X to Y by year ABC”. Likewise, for national leaders, it may be more meaningful to make an oblique goal like, to deliver rapidly increasing social, judicial, and economic justice to the population, thus improving growth.
The virtues of obliquity are worth reflecting upon. Best wishes for an oblique 2023.
(Entities controlled by the Kotak family have a significant shareholding in Business Standard)
The writer is an author and a business commentator.