Shareholder value: is there common ground? - employee training during financial tough times

T+D, July, 2002 by Gary L. May, Bill Kahnweiler

In reaction to the increasing shareholder pressure for short-term profit, training professionals can succeed while holding true to professional values.

Imagine this scenario:

You've just attended a technology training conference and picked up some useful ideas. But as you settle into your seat on the plane and pull out your hotel copy of the Wall Street Journal, you feel a tightening in your gut. Your company has missed earning projections two quarters in a row, and you know the announcement for the most recently completed quarter was yesterday. A quick glance at the market quotes confirms your fear: Your company's stock price has taken another hit. You slide down in your seat and close your eyes. You can visualize the coming impact on your department. You wonder what the latest directives will be to push an already overstressed, overworked, overmanaged, and underled workforce to do more with less. The office definitely won't be a happy place on Monday.

Sound familiar? Increasing shareholder pressure for short-term profit was identified as the number 1 trend affecting workplace learning and performance at the ASTD/AHRD Future Search Conference in Orlando, in June 2001.

Since then, we've had the dot.com bust, the Enron and Global Crossing debacles, and of course 9/11. Will those events reduce the emphasis on short-term results? Will the future be any different for the training and development profession? Here's an even more important question: What do we desire the future of the profession to be?

As part of the Future Search process, the 64 invited attendees, who represented the diverse workplace learning supply chain, sought to answer that important question. They reached consensus on a list of common values and principles to help shape the profession's agenda and practice for the future. The process produced working drafts of 11 Common Ground Statements.

A quick glance at the statements reveals immediate conflict with business practices such as emphasis on shareholder value and financial performance. Though collaboration and respect for human dignity are priorities, what businesses care about most is how learning supports and drives business results, and that is absent from the Common Ground Statements. The difference in focus provides a major insight into why training and development professionals rarely have a seat at the boardroom table.

If we want our work to have impact and relevance, we need to explore and reconcile such differences. Let's look more deeply at the shareholder value trend in light of recent events and suggest ways that workplace learning professionals can use the Common Ground Statements to speak to the needs of the business while holding true to their professional values. To do that, we must first understand the dynamics of the shareholder value trend, learn how to get inside the heads of our CEOs to discover how they think about business results, and then reframe the discussion to find true common ground.

How we got there

The prosperity of the 1990s raised the bar in terms of shareholder expectations for publicly held companies. Increasing shareholder value, increasing the stock price, became the mantra for many CEOs and the dominant philosophy of American businesses. That trend was amplified by the liberal granting of stock options to executives and managers. Because options pay off big only when stock prices rise, optioned execs' interests should, theoretically, align with shareholders' interests--thus boosting productivity, profits, and shareholder return. Frontline employees also participated as their 401(k) accounts, loaded with company stock, soared in value. The pressure was enormous for even higher stock prices.

Failure to deliver on financial projections usually means that bad things happen to those in charge, as evidenced by the CEO turnover rate in the Fortune 500. The stress went down the line in the form of demands for better, faster execution at lower costs. Companies downsized, outsourced, merged, globalized, and automated in an effort to keep the numbers moving upwards. When that didn't happen, staff functions such as training were often first to feel the hit.

Privately held companies weren't immune as they faced increasing demands from their publicly held customers for price concessions, improved quality, and speed. Government and not-for-profit organizations were also caught up in the performance race by having to demonstrate business-like productivity gains to compete for resources in the marketplace.

The death blows were the dot.com, Enron, and Global Crossing meltdowns. Gradually, human nature took over and many companies began to ignore business basics in favor of short-term actions designed to pump up stock prices.

"Investors didn't care about the balance sheet or abstract ideas such as intellectual capital," says Bob Keith, director of the School of Accountancy at the University of South Florida. "They valued revenue growth and predictable profit increases. To keep their jobs, CEOs had to deliver. That caused tension that led some leaders to mortgage their companies' future to achieve an immediate boost in stock price."