Success depends on aligned interests

Top business schools have named new deans, focusing on "ethics" and "social responsibility." But emphasizing broad topics like "ethics," "reputation," and "CSR" won't likely lead to specific change.

Top business schools have named new deans, focusing on “ethics” and “social responsibility.” But emphasizing broad topics like “ethics,” “reputation,” and “CSR” won't likely lead to specific change.

Whether it's executive compensation, questionable product quality, or fees, it typically boils down to the interests of one group being out of alignment with those of another.

Look at the list of top retail mutual funds by asset inflows in 1999. Many had grown rapidly by creating and hyping “hot” products. And, of course, it ended badly with tremendous consequences for investors, employees, and intermediaries.

Now consider American Funds. It never drifted, always kept interests balanced and aligned. Its investors have prospered. Oh, and it's also no coincidence that American Funds has had such a strong, consistent management team, unlike many competitors who seem to name new leaders every year or two.

And there's Northwestern Mutual with its financial strength and unparalleled dividend history with its permanent life products. Management could retain more of this money, but doesn't. No surprise NML is a market leader, and always ranks “most respected.”

On the other hand, consider the company that gives a huge option grant to a CEO at the market bottom, disadvantaging other shareholders (including many employees). 

Or the CEO who states after the tragic accident that profit pressures led to a departure from “quality standards.”

When interests are out of alignment, eventually something breaks – occasionally with catastrophic, global consequences.

Short-term financial temptations are great. Using strict cost/benefit analysis, it's easy to see why companies and entire sectors often fight to maintain the status quo, misalignment, as long as possible.

But organizations that effectively balance the interests of all stakeholders can and should communicate with great specificity what they are doing.  Not for “soft” reasons, but rather to support long-term, sustainable growth: to drive sales, to attract talent and, for public companies, to build a strong investor base.

David Tager is president of Tager & Co.

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