Just before the future of organizations

Yves Cavarec
Aug 24, 2017 · 5 min read
Goya painting: Kronos eating his son

Let’s have a renewed look at how organizations funtion, the role of CEOs, and how shareholders are slowly killing the goose that laid the golden eggs.

Organizations are resource allocation systems

From an economical perspective, a company is an exchange place, a resource allocation system between stakeholders: shareholders, executives, employees, customers, suppliers, governments, and the environment. Stakeholders give resources to the organization and expect other resources in return. For example, employees give their time, ideas, knowledge, skills, attitude, good and bad mood and get in exchange other resources such as money, professional experience, life expience the good and bad mood from their colleagues, career expectations… Same for other stakeholders they give and take resources.

CEOs are peacemakers in traditional organizations

Now think of the following question

What percentage of revenue should be allocated to employees? (or any other stakeholder)

Obviously, there is not one single good answer to the question. It depends. In fact, the CEO is the key in value distribution in traditional organizations. How much will be given to suppliers is related to purchase. How much will be given to customer is a question of sales. How much will be given to employee is a HR question. Tax depends on the company locations accross the globe. Etc. This is why in traditional organizations, CEOs are ultimately accountable for all those results, including, of course shareholder value.

About financialization

We talk about financialization when stakeholders focus all their interest on financial resources, excluding other resources such as life experience, environment, social impacts… as if they had no value. Stakeholders compete to take more value from the exchange experience with the company. They all desire money and end up finding reasons why they deserve it and finding reasons why others don’t deserve what they have. And the organization becomes a battle field of all against all:

  • All stakeholders, except suppliers, consider that cost killing is a good solution for the company
  • All stakeholders, except customers, consider that the selling price should increase
  • All stakeholders, except the government, consider the tax are too high
  • Shareholders would like to cut the salaries
  • The CEO considers that shareholders are putting too much pressure on her or him
  • And other stakeholders consider the CEO is putting too much pressure on them

Instead of collaborating all together to create a bigger cake (more value), they try to steal a piece of cake from another stakeholder. Competition is for losers.

Always hold shareholders back

I thought companies were made to create shareholder value. Then, in March 2009, I met Claude Bebear, the founder and past CEO of Axa, one of the biggest financial service brand worldwide. Bebear stunned me:

A CEO should be able to say “no” to shareholders.

Of course it is good to create shareholder value! But it is impossible to do so if you don’t care of your customers, because customers are the ones who fuel your company with money. And who is taking care of the customers? Employees of course! Do you think employees will take care of customers if you don’t care of them? So take care of your employees. And employees cannot do all your company need to do by themselves. This is why you have suppliers. You also need to care for your suppliers so that they give you their best technology and their best ideas (otherwise they’d favor your main competitor instead). If you care about your shareholder, you should also care about other stakeholders.

And the problem with shareholders is that they have a short term view, because they are driven by their fears. They want quarterly financial reports. The watch the stock market several times in a day. The paradox is that business neads time. Even if the world is going faster, it still takes time to develop great products and sell them. This is why a CEO needs sometime to say “No” to shareholders, Bebear said. When a company is driven by shareholders, it is driven by fear. It has no future.

No, shareholders are not company owners!

Why should CEOs be appointed by shareholders? or by the Board of directors that most of the time represent shareholders

There is no good reason why CEOs should be appointed by shareholders. Of course, shareholders want to make more money. And they believe the best way to achieve their goal is to control the CEO. This is why they say they own the company. The reality is that the company belongs to nobody. Shareholders are only investors, not owners. And it makes a big difference. Let me show you.

Imagine I have invested in a company. I have 100% of the shares. But I am not working there. There is a CEO and the staff. This company is a restaurant. Imagine you go and eat in “my” restaurant with your family and friends and because of what you eat you all get disabled for the rest of your lives… Will I be accountable for this? Of course not! In the worst case, I’ll lose all the money I put in the company. Nothing more. Because I am not the owner. I am just an investor. And there are laws to protect investors in all democracies: it is called limited liabilities.

Now imagine that I own a dog. I can say it is “my dog”, because I am the owner, which makes a difference with the restaurant. If my dog injured you, your family and your friends before you go to my restaurant and you were all disabled for the rest of your life, I would be entirely accountable and I would potentially have to pay for the rest of my life for your injuries. Because I am the dog owner and there is no law to protect owners such as there are laws to protect investors.

Who should appoint the CEO then?

With algorithmic trading, you can invest in a company for a few seconds, even less. It is easy for any shareholder to sell their stocks. Shareholders are not often loyal to the companies they own (unless they have theWarren Buffet’s style).

On the contrary, it is harder for most employees to quit a company they have been working for for a while. Of course they didn’t put their money in it. But sometimes they put their lives. It’s the same for customers in certain situations: normally old people don’t change retirement homes like that, for example.

Could bockchains replace a CEO?

I don’t. I don’t know enough about blockchains. Some believe it could. What do you think?

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