What Do Shareholders Really Want?

Many people assume that the primary purpose of a business is to generate profits.

But as discussed in previous posts like this one, this view is overly simplistic. Building a successful, thriving enterprise requires consistently delivering value to customers, employees, and shareholders alike—what I term the First Law of Business.

The First Law of Business: Each of these groups must receive consistent value for a company to be successful.

Today I want to zero in on the shareholder corner of that triangle and explore what those shareholders truly prioritize.

Once again, the knee-jerk answer might be “profits.” Anyone who’s read their Friedman might agree, but if profits were the sole driver of shareholder value, we'd expect a perfect correlation between a company's net income and its market valuation. In reality, that correlation is only moderate. For instance, one analysis found that changes in net income explain just 26% of the variation in stock prices. This leaves a significant porti…