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The Daily Drucker

Defining Corporate Performance

Ralph Cordiner, CEO of the General Electric Company from 1958 to 1963, asserted that top management in the large, publicly owned corporation was a “trustee.” Cordiner argued that senior executives were responsible for managing the enterprise “in the best-balanced interest of shareholders, customers, employees, suppliers, and plant community cities.” That is what we now call “stakeholders.” Cordiner’s answer still required a clear definition of results and of the meaning of “best” with respect to “balance.” We no longer need to theorize about how to define performance and results in the large enterprise. We have successful examples.

Both the Germans and the Japanese have highly concentrated institutional ownership. How, then, do the institutional owners of German or Japanese industry define performance and results? Though they manage quite differently, they define them in the same way. Unlike Cordiner, they do not “balance” anything. They maximize. But they do not attempt to maximize shareholder value or the short-term interest of any one of the enterprise’s “stakeholders.” Rather, they maximize the wealth-producing capacity of the enterprise. It is this objective that integrates short-term and long-term results and that ties the operational dimensions of business performance—market standing, innovation, productivity, and people and their development? with financial needs and financial results. It is also this objective on which all the constituencies—whether shareholders, customers, or employees—depend for the satisfaction of their expectations and objectives.

Source: A Functioning Society

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