TORONTO, Jan. 19 - Is it time to abandon shareholder capitalism? A new article from the January-February 2010 of Harvard Business Review says it is and that we should make the shift to a new era of customer driven capitalism.

"It's time to discard the popular belief that corporations must focus first and foremost on maximizing value for shareholders," says article author Roger Martin, Dean of the Rotman School of Management at the University of Toronto. "That idea is inherently, and tragically, flawed. It's impossible to continually increase shareholder value, because stock prices are driven by shareholders' expectations about the future, which cannot be raised indefinitely."

Martin writes that determining what your customers value and focusing on always pleasing them is a better optimization formula.

"If more companies made customers the top priority, the quality of corporate decision making would improve because thinking about the customer forces companies to focus on improving their operations and the products and services they provide, rather than on spinning lines to shareholders," says Martin.

In the article Martin uses historical stock prices from the S&P 500 to show that the focus on shareholder value hasn't done shareholders any favors. They have actually earned lower returns since corporations adopted it as their guiding principle. Two companies who have placed customers at the forefront of their operations, Johnson & Johnson and Procter & Gamble, have generated shareholder returns that are at least as high as, if not higher than, those of leading shareholder-focused companies.

Roger Martin has served as Dean of the Rotman School since September 1, 1998. He is an advisor on strategy to the CEO's of several major global corporations. His most recent books are The Design of Business: Why Design Thinking is the Next Competitive Advantage (2009) and Dia-Minds: Decoding the Mental Habits of Successful Thinkers (with Mihnea Moldoveanu, 2010). He serves on the Boards of Thomson Reuters Corporation and Research in Motion and is a trustee of The Hospital for Sick Children. He received his AB from Harvard College, with a concentration in Economics, in 1979 and his MBA from the Harvard Business School in 1981.

The Rotman School of Management at the University of Toronto is redesigning business education for the 21st century with a curriculum based on Integrative Thinking. Located in the world's most diverse city, the Rotman School fosters a new way to think that enables the design of creative business solutions. The School is currently raising $200 million to ensure Canada has the world-class business school it deserves.

Read Full Article Here

http://hbr.org/2010/01/the-age-of-customer-capitalism/ar/1

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