In accounting, a company is assumed to have an infinite life divided into a finite period for financial reporting and performance review purposes. Almost all businesses want to be in existence till perpetuity. The word ‘going concern’ is a famous slogan, and companies, even large corporations like Enron, do fail not for lack of intention but for failure to be led by infinite-minded leaders and owners.
Last week, I defined my infinite stake theory as a mindset. Deployment of a stakeholders’ capitalism in replace of Milton Friedman’s shareholders’ capitalism. Companies do not and cannot be in existence for the sake of the shareholders alone.
No shareholder group can independently achieve any noble objective without the active involvement of the other stakeholders. Though the level of interest and power may differ, the key stakeholders should be treated and made to feel like the owners to guarantee perpetuity.
In history, the wealth of nations and corporations are mainly built on the back and with the sweat and blood of average citizens and staff who are in the majority
Simon Sinek identified Apple and Costco as the two leading corporations in employee engagement, with an average retention rate of 90 percent. My position that employees at the lower level should be treated with an infinite mindset is justified by Costco’s culture, stability and resilience in the retail sector.
I have been shopping with Costco stores in Milton Keynes for the last 15 years, and it is incredible to see the same set of people day in and out serving customers excellently. This experience made me research and wrote about Costco and James Sinegal.
According to the current CEO, Craig Jelinek, Costco’s approach to putting its employees first is simple: treat people fairly and value them for their work, and they will stick around. Jame Sinegal imbibed the finite stake theory in Costco. He had made the company a reputable business in all parameters – market capitalisation, dividend yield, employee and customer commitment, to mention a few.
Costco is built on a culture that values passion, pride, integrity, and treating employees right from the bottom up.
Contrary to Costco’s culture are the views of the followers of Jack Welch’s famous performance-obsessed approach to business. No doubt, performance is vital, and I agree with Welch’s method of exiting the bottom 5 percent of staff based on justifiable metrics.
However, the implementation of the talent-centric approach and the consequent lopsidedness of interest versus continuity is less desired. The Welch school of thought in the developing world had dovetailed the beliefs that leaders achieve the results by their talents alone and rewards in terms of executive bonuses had bred countless unethical and selfless behaviours. Yes, leaders are to be measured by the result they achieved, but how they lead the followers who are directly responsible for producing the result is paramount to the business’s perpetuity and culture.
Again, Simon Sinek described Jack Welch as a finite-minded leader-a leader who cares for the annual performance and with blindness for future perpetuity and resilience. If you reward a few leaders for others’ work and believe all you need are the leaders and the result they produce, you are leading your company into oblivion soon. Chasing annual performance at the detriment of an entity’s long-term resilience is a sign of finite-mindedness. If you doubt my position, read how Jack Welch’s General Electric was bailed out with $139 billion by the American government. Without the bailout, GE and Welch’s philosophy would have been history by now.
The Well Fergo’s account fraud scandal that led to the fine of $183 million and an estimated $2.7 billion in civil and criminal suits in 2018 is an attestation of how lopsided executive bonus, performance obsession, and reward and pressure can breed unethical practices. In Well Fergo’s case, accounts were opened without customers’ consent to meet targets for which the executive was compensated. In many sales organisations, the executive’s pressure to increase the shareholders’ value through the share price and dividends had done more harm than envisaged.
Read also: What management must know about share-based payments to employees: Accounting & tax implications
In simple terms, bonus or performance-driven incentives are not wrong. They are useful if the goose that lays the golden eggs is not abandoned. In history, the wealth of nations and corporations are mainly built on the back and with the sweat and blood of average citizens and staff who are in the majority.
The infinite stake theory seeks to recognise the team, especially the majority, whose contributions form the company performance’s bedrock. The lower-cadre majority should be rewarded beyond the monthly wages. They are responsible for the result and should be treated like the executive who takes credit for the performance in terms of bonuses, humongous allowances and other perquisites of office.
Most importantly, for a business, is how results are achieved. A leader can achieve results, get promoted and rewarded but destroy the resilience quotient of the company. This is what happened when staff loyalty is zero, and the company’s talent and leadership pipeline is unstable.
A sustainable model of achieving the result is to respect the right of others and value their contributions. Where the executive’s drive is to make a profit and earn a bonus at all costs; the result will be a mirage in the long run. Short-termism favour the executive who cares less about the infinity of the business after their exit.
In football, history has it that players who stay longer in a club gel with the team and are likely to be legends winning trophies for the club. Lionel Messi is forever in Barcelona. Christian Ronaldo spent nine seasons at Real Madrid to have scored 105 goals with many titles, including three champions league cups.
Stability is good for the business entity, but more important is resilience. A resilient business will always overcome challenging economy and structural turbulence, unlike those that chase profits and wealth of the shareholders only.
The world will be better if we have businesses that outlived the owners and founders. The infinity in business is hinged on treating customers fairly and placing an infinite value on the internal customers who are the face of the company. Infinite stake theory, therefore, advocates the building of a talent and leadership pipeline for organisations that seek to live beyond the wealth of the owners and few close allies of the directors.
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