What is this practice and how effective is it?

Mission statements have become popular in recent years as managers look to build a high-performance culture. The trouble is that most focus on lofty goals and meaningless words rather than inspiring people with a compelling reason for being and core values that build their emotional commitment. Consequently, despite the time and effort involved, people end up ignoring most of them. We will look at how the best organizations deal with these problems and inspire their people.

Alternative names and related topics: corporate governance; business ethics; emotional commitment

How an organization defines its purpose and defines and articulates its goals influences how its people think, behave, and act in any given situation. Many organizations have focused their purpose and goals on making money or maximizing shareholder value rather than building great businesses and satisfying stakeholders, including employees, customers, and the wider community. The shareholder value model is rooted in traditional economic thinking. The model assumes that individuals are self-interested, rational decision makers driven by economic goals, and that economic relationshipswith employees, suppliers, customers, and external partnersare governed by binding contracts. In the industrial age, most people didnt need to understand their companys purpose; they simply did what was specified on their job descriptions and what their bosses told them to do.

In this model, the senior executive officers are agents of the owners, who act as stewards for the owners capital and are hired and paid to invest it wisely and grow its value over successive years. If they succeed, they are well rewarded, but if they fail, their jobs are on the line. Most large corporations have mission statements filled with words such as shareholder value, customer service, and product quality. And of course every chairmans report pays homage to the firms employees, who are usually the companys greatest assets. But despite pandering to other stakeholders, most executive teams know that it is increasing shareholder value that will keep them in their jobs.

But is the explicit pursuit of shareholder value the best way to actually achieve it? Not according to British economist John Kay. He believes that great organizations are not exclusively profit oriented.

Take the case of ICI, Britains leading industrial company for most of the twentieth century. Its original purpose was about the responsible application of chemistry to business. The company began in dyes and explosives and then moved into new chemical businesses like fertilizers, petrochemicals, and finally into pharmaceuticals, all in the pursuit of applying chemistry to business in different ways as the needs of the wider economy changed. But in the 1990s, the company very explicitly abandoned that kind of goal in favor of shareholder value. Leaders disposed of many of their traditional businesses and bought a range of new ones, and paid too much for the businesses they bought. The company declined rapidly and disappeared altogether in 2007 (the business was sold to the Dutch company, Akzo Nobel). So not only did the responsible application of chemistry create a better business than did the attempts at increasing value; it also created more shareholder value. So its a process of adapting, a very loose general idea, to changing particular circumstances over time, noted Kay.

When Citicorp merged with Travelers in 1999 to create the sprawling bank conglomerate Citigroup, the joint CEOs held a press conference. John Reed, Citicorps CEO, declared, The model I have is of a global consumer company that really helps the middle class with something they havent been served well by historically. Thats my vision. Thats my dream. His joint-CEO, Travelers Sandy Weill, rapidly interjected, My goal is increasing shareholder value. Reed and his old-fashioned, oblique way of running a business was sidelined. Just a few years later, Citi was in trouble and Weill was forced out; within a decade, Citigroup was forced into the arms of the U.S. government.