Memo to: CEOs

Then, in 1997, the Business Roundtable announced that it was making a remarkable U-turn. Its report on corporate governance assigned a new priority to CEOs: Maximize shareholder value. "The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors," the report read. "It is, moreover, an unworkable notion because it would leave the board with no criterion for resolving conflicts between interests of stockholders and of other stakeholders or among different groups of stakeholders."

Here's what that statement actually means: When it comes right down to it, the customer may be king and the employees may be the corporation's greatest asset. But the CEO's only real responsibility is to serve the interests of the shareholders.

Now let's take a look at who these shareholders are, what they own, and how they own it. The way that the economy works today, with instantaneous information, global capital flows, and Internet-based stock trading, fewer and fewer shareholders are genuinely committed in any way to the companies that they "own." Giant mutual funds buy and sell millions of shares each day to mirror impersonal market indexes. Programs instruct traders on which shares to buy or sell and when -- although rarely on why. Then there are the recently arrived day traders, who become shareholders of a company and then ex-shareholders of that company within a matter of hours, as they surf the market for momentum plays or arbitrage opportunities. These are the shareholders -- who may not have any interest in the company's products, services, employees, or customers -- whose interests you are now pledged to maximize.

Of course, there is a half-truth in this mantra: Shareholders' interests are significant. The capital markets do need to work, and for that, shareholders need a fair return on their investment. But there is a larger truth to this half-truth: Maximizing shareholder value at the expense of all of the other stakeholders is bad for business and bad for capitalism. It drives a wedge between those who create the economic value -- the employees -- and those who harvest its benefits. Customers, too, recognize the cynicism of a company that only sees them as dollar signs. That may be one reason why the American Customer Satisfaction Index has declined steadily in almost every industry since the mid-1990s. "Maximize shareholder value" may be the job description that CEOs automatically recite -- but it is profoundly misguided.

3. Companies need CEOs who are heroic leaders. This is another half-truth. Of course, one of the CEO's roles is to provide leadership. But the real question is, What kind of leadership?

The notion of the CEO as heroic leader is one that you've heard so often that you've probably come to believe it: The CEO is the company, a heroic leader who single-handedly steers the business to success.

Two questions are worth asking: Why did this half-truth emerge? And how did it happen? In large part, the "why" is a reflection of half-truth number two. Having heroic CEOs serves the interests of the shareholders, who want disproportionate rewards. How did they bring this notion into practice? In simple terms, you CEOs were bought. All it took were huge bonuses and excessive stock options!

The fig leaf that covered those rewards was an equally large set of assumptions. The business world was led to believe that you, the CEO, are the embodiment of the company, that you alone are responsible for the company's entire performance, that your performance can be measured, and that the one important measurement is the creation of shareholder value. And all it took to validate those assumptions was the creation of heroic, larger-than-life CEOs. Taking the cue, business journalists happily provided personalities and simple explanations to fit the bill. CEOs became celebrities. One example: In its April 14, 1997 issue, Fortune magazine wrote of IBM CEO Louis Gerstner, "In four years Gerstner has added more than $40 billion to IBM's market value." Admittedly, Lou Gerstner is an excellent CEO. But did he really do that all by himself?

The problem with the notion of heroic leadership, of course, is not just that it's preposterous on the face of it. It is also corrosive to the connection that needs to exist between a real leader and the people who make the company work. Real leadership is connected, involved, and engaged. It's often more quiet than heroic. Real leadership is about teamwork, about taking a long-term view, about building an organization slowly, carefully, and collectively. As CEOs, your job is to set an example of energizing others, not to take dramatic actions that let you take the lion's share of the spoils.