Shareholder Value

The former General Electric chief told the Financial Times the emphasis that executives and investors had put on shareholder value, which began gaining popularity after a speech he made in 1981, was misplaced.

Mr Welch, whose record at GE encouraged other executives to replicate its consistent returns, said that managers and investors should not set share price increases as their overarching goal. He added that short-term profits should be allied with an increase in the long-term value of a company.

“On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”

Mr Welch last week said he never meant to suggest boosting a company’s share price should be the main goal of executives.

“It is a dumb idea,” he said. “The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees”.

Financial Times, Welch condemns share price focus, Francesco Guerrera in New York, 12 March 2009