If you had invested in these household names in the 1990s era of shareholder value, you would have lost all your money in GEC and Sears and most of it in the others. Your least bad bet would have been on ICI, whose shares were acquired in 2007 for about one-third of their price a decade earlier. Both GE and Marks and Spencer subsequently lost more than 80 per cent of their peak value. Almost all financial advisers would have agreed in 1995 that a portfolio that consisted of these stocks was a safe and conservative, if unexciting, choice. And that advice would have been spectacularly wrong.
In every case, the activities that analysts and investment bankers applauded diverted attention from the central issues facing the operating businesses, and this diversion was the source of the long-term decline of the corporation. All of these companies cut costs and raised prices in ways that reduced the long-term attractiveness of the business, as exemplified by Marks & Spencer. They engaged in earnings management, effectively borrowing money from the future to enhance reported profits now. As in GEâs financial services businesses. They adopted accounting practices that accelerated the recognition of profits that might be earned in the future but often were not. As at Enron. They were enthusiastic dealmakers, engaging in activities that excited the investment community but which rarely created value and frequently destroyed it. As exemplified by GE. In each case, the short-term boost to the share price was followed by a lengthy â or, in the case of GEC, abrupt â decline. The leaks from the pipes became a flood. Some companies were able to resist the demands of share-holder value. Notable among these stand-outs were some of the leading producers of fast-moving consumer goods (FMCG): corporations such as Proctor and Gamble, ColgateâPalmolive, Coca-Cola, Unilever and NestlĂ©. The culture of these businesses was and still is dominated by marketing people, for whom responsiveness to the needs of customers is a preoccupation. And that responsiveness is the key to the durability of these companies.