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Companies should stress value, not short-term profits.

View the original article in The News and Observer by clicking here.

Most of the people I encounter in the business community will tell you that they are not fans of Donald Trump as a person, but they agree with most of his policies including lower taxes, less regulation, beefed up national security, and greater individual liberty. And they are impressed with his progress on all these fronts.

But to win the next election will require something more than the standard Republican playbook to capture independent voters.

While there are a few Democrats who will not be running for president in 2020, just about everyone on the left who is has started floating policy ideas they hope will differentiate them from the pack. This is a good thing. Republicans should listen with an open mind and come up with some fresh ideas of their own.

Despite her progressive hubris, Elizabeth Warren may be the smartest of the liberal candidates.One of her foundational economic ideas is to radically alter American corporate governance by placing workers on the boards of public companies. Since I headed corporate governance policy under Bush 41, and teach the subject at UNC’s Kenan-Flagler Business School , I feel a duty to weigh in.

Though Warren’s proposal is antithetical to America’s business culture, which considers the owners of companies the ones to whom the corporation should be accountable, I agree with her premise that corporate stakeholders are too often ignored by profit-obsessed CEOs.

The financial goal of a company is not to maximize near-term profits, as commonly believed; it is to maximize long-term shareholder value. Those are often very different objectives. Try to explain Tesla’s stock price with quarterly earnings. To maximize sustainable shareholder value, a company must pay attention to and seek buy-in from all its stakeholders, including workers, customers, suppliers, and the community; as well as respect the environment. The current generation of CEOs was not taught this in business school, and too few of them practice it. If a decision does not show a positive cash flow on a spreadsheet, it is rarely implemented. But many sound business decisions cannot be easily quantified.

My favorite business role model is a company whose motto is: “People over Profits.” This company pays its employees above the industry average and invests far more in worker training than its peers. It provides customer service radically superior to any of its competitors. It encourages store managers to become involved in their local community. It has even innovated a process to recycle Styrofoam cups. In an industry with grueling work schedules, this fast food company is closed on Sundays to allow its employees a day of rest, and time to attend church and/or be with their family.

No traditional MBA course would teach such a business model, in which a company embraces all its stakeholders at the apparent expense of the bottom line. So how does this company’s financial performance compare to its profit-obsessed competitors?

Chick-fil-A generates an astonishing 50 percent more revenues per store than any other fast food company, including McDonald’s, Wendy’s, and Hardees. And that is in six, not seven, days a week.The shareholders are very handsomely rewarded by the company serving its other stakeholders. It is a virtuous cycle.

Capitalism is increasingly vilified by liberal candidates. Only congress is less respected by the general public than big business. With the likes of Wells Fargo, Facebook, and big pharma fleecing stakeholders for short-term economic gain, many corporations deserve their sullied reputations. If they fail to practice a more enlightened form of capitalism, they may face a new sheriff in town in 2020.

Companies should stress value, not short-term profits.

View the original article in The News and Observer by clicking here.

 

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