The importance of lasting value

Umair wrote a post earlier this week entitled How to Build a Next-Gen Business Now.  His central point is a rework of one he has oft made before – have good corporate DNA and focus on adding real value to the world.  A bit more on that in a moment, but before then I want to bring out a couple of other points.

Firstly his analysis of the current meltdown on Wall Street as a problem of institutional decay, or bad DNA:

Investment banks failed not just as businesses, but as financial institutions that were supposedly built to last. It was ultimately how they were organized and managed as economic institutions – poor incentives, near-total opacity, zero responsibility, absolute myopia – that was the problem. The rot was in their DNA, in their institutional makeup, not in their strategies or business models.

Secondly, on the narrowness of market cap as a measure of success:

When your market cap … can be utterly vaporized in a matter of days, it’s a stark reminder that shareholder value is a videogame – and it is human outcomes that make work meaningful.

And finally, his list of what it will take for the system to right itself:

We need no less than better corporate governance, a working shareholder democracy, a recognition of what capital really is (and isn’t), radically more enduring incentives – aligned with outcomes that actually matter to people – the capacity to trust and be trusted, more accurate and timely reporting, strategy that creates authentic value instead of just shifts numbers around, and business models that can yield sustainable growth.

When it comes to startups and small companies generally I have been saying for a while now that businesses which have a real passion to change some aspect of the world for the better at their core (i.e. in Umair’s parlance have good DNA) have a better chance of success than those that don’t.  But then I always qualify that by saying this sort of passion helps, but it is neither a necessary nor sufficient quality for success.  However, as this crisis unfolds I am thinking that it is more and more important, so much so that I’m starting to wonder if I should make seeking out these sorts of companies a more explicit part of my strategy.  Certainly I will attach increased value to companies that don’t just think about themselves in terms of share price appreciation.