We often hear executives talk about their companies in terms of share price.  Certainly, this is an important metric, especially for stockholders.   Where it becomes a problem, however, is when top executives start making decisions through the lens of stock value only.   I remember a case where a CEO’s bonus was tied to the following quarter’s stock price.   This incentive was great for him personally, but damaging to the long-term health of the company.  Anyone can cut costs and get a short-term rise in stock price, but this type of decision rarely takes into consideration the longer view.   When done for personal or short-term gain, the negative impact to the health of the company is typically high.

A wise leader taught me to never be pressured or defined by the market.  He taught me and my fellow leaders to ignore the market and focus on the following:    When putting together a vision/strategy or making key business decisions, ask yourself 2 questions.

1. Would you make this decision or take this direction, knowing that you are leaving the company to your children and grandchildren, and the children and grandchildren of your associates?  We will always do the right thing for our children.  We will make sacrifices, remove all barriers, and do anything to secure their welfare.    Using this algorithm will always preserve the long-term view.

If the answer to Question 1 is “no”, stop.  Your decision is probably taking you in the wrong direction.   If yes, proceed to the next question.

2. Is this decision the right thing for humanity and sustainability, i.e. Environmental, Social, and Corporate Governance (ESG)?

If you can say yes to these 2 questions, or gates, the business results will come, and the market will reward you in time.   If you get stopped at either of these gates, your direction is probably the wrong approach.

Back in the 80’s, a former employer of mine was considering being the first company to put a factory in China and other lower cost countries.  This CEO realized that factories in these countries would provide lower labor costs and help the bottom line of the company, both short and long term.  He got through gate 1.  However, he recognized that although this low-cost labor would help the company and provide jobs, it did nothing to improve the local quality of life.  He knew that although these people were building his products, they would never be able to afford to buy them.  He concluded that, although he got through gate 1, exploiting this low-cost labor without a local benefit to society was the wrong thing for humanity.   He decided to build not only factories, but contribute to building housing, schools, and hospitals to ultimately create an economy that could buy his products, not just build and export them.  This CEO created his own markets in these countries and gained access to big populations.  The positive impact to the company and these locations was incredible.   Profitable markets were established, and at the same time, the economy and quality of life improved wherever he put a plant.

I have found this algorithm to be very useful with all major decisions.   When we think of the health and well-being of our children or the children of our employees, we seem to think more clearly than if we listen solely to the short-term market noise.   With the current emphasis on environmental, social, and corporate governance responsibility, the second gate is essential.

Teach your people this very simple algorithm for decision making.

1. Is this the right thing for your business, knowing that you leaving the company to your children and grandchildren and the children and grandchildren of your employees?
2. Is this the right thing for humanity/sustainability?

If you can get through these 2 gates, your business will have a great chance of thriving for generations.

- Tom Tischhauser