A Business Case for “Putting Customers First”

One of the few things that actually stuck with me from law school was the concept of “maximizing shareholder value.” The basic idea was that the corporation exists solely to maximize shareholder value, i.e., profit. It argued that as among the interests of shareholders, employees and customers, the shareholders’ interests ruled the roost. Whenever there was a conflict of interest among these three constituents, the company should choose the option that favors the shareholders. To me, it sounded innocuous and obvious.

Even though this idea sounded inconsequential to me at the time, some argue that it was the rationale behind all major corporate activity since the 1970’s: leveraged buy-out craze, “managing quarterly numbers”, a rise in shareholder activism and government de-regulation. Some argue that it ultimately led to the global financial mess that we’re in today. (“Fixing the Game” lays out this argument). Jack Welch, one of the best CEOs in modern times and a one-time proponent, now says that it was the “dumbest idea in the world.”. There’s now a new movement of “putting customers first” led by folks like Howard Schultz of Starbucks – the argument being that putting customers first is the better corporate philosophy and long-term approach. (Again, an innocuous-sounding approach).

This may seem like purely a theoretical exercise to people in the start-up and tech worlds. But you could argue that tech companies were some of the first insurgents to this idea. When Jeff Bezos and Larry Page said in 1997 and 2004, that they would “focus on users first” in their IPO letters to shareholders, it was actually somewhat subversive. It sounded insufferably pious but it put users first over investors as a business strategy. Investors were furious.

When it came to Amazon, it clarified to the customer that they would get the best prices and best customer service. That was their identity. When it came to Google, it clarified that they wouldn’t do annoying pop-up ads or deceptive installation tactics, which were de rigueur (and highly profitable) at the time. “Don’t be evil” wasn’t just a sanctimonious punchline but also a business strategy of putting the user’s interests above all others – including investors’.