The Customer or the Investor? Who goes first?

What does history tell us about the obligation of a company to deliver profits to its investors as opposed to its obligation to satisfy its customer?

Several months ago, United Airlines experienced a public relations nightmare when it mistreated one of its customers while forcibly removing him from an overbooked flight. Since then, many airlines have received bad press in the form of multiple customer complaints, from everyday people to high profile reporters, such as Ann Coulter.

I was recently booked on a flight that was plagued with weather delays. When the plane finally did arrive at its intended destination, it did so along with several other planes full of disgruntled, exhausted and late passengers. The lines at the customer service desk snaked through the entire terminal, and the wait to get flights rebooked stretched over two hours. Attendants frequently announced that the airline was “out of” hotel vouchers and boxes of blankets, pillows and toothbrushes were handed out. When passengers complained that the terminal was unsafe to sleep in, they were told, “The airline does not control the weather.” Groups of elderly and disabled passengers along with those traveling with small children were left to spend the night in a seemingly abandoned airport with no increased security. For a moment, the passengers seemed to resist their fate, only to realize that they had no choice but to find a cold, dirty corner of the airport to sleep in.

As I watched the scene unfold, and realized the cold reality that the airlines no longer care about the satisfaction or safety of their customers, I wondered how long this business model would continue. What does history tell us about the obligation of a company to deliver profits to its investors as opposed to its obligation to satisfy its customer?

The goal of every business is to make a profit. In fact, it is considered the moral obligation to obtain the best possible return on investment for its stockholders. There is an actual case, Dodge vs. Ford in 1919 which is still controlling law, from the Michigan Supreme Court, that Ford could not lower prices and give raises to production workers after Henry Ford announced to his stockholders that his chief goal was not to provide for stockholder return.

 

At the other end of the spectrum, there are companies that strive to increase customer satisfaction, postulating that this satisfaction will increase loyalty, sales and profits in the long run.

Delighting their customers through continuous innovation has become their bottom line. Making money is the result, not the goal, of their activities.

What is the goal of a business? At what point does business and profit suffer when the focus swings too much in either direction? A business can give away too much profit in customer service that is not returned with increased loyalty. On the other end of the spectrum, a company, like many of the larger airlines, can give way too little by way of customer service and create a complete vacuum in customer loyalty and overall interest.  Any business that fails to balance the deeply rooted desires of both their shareholders (owners, investors, employees) and their customer base will eventually fail.

“Deloitte’s Center for the Edge studies show that the life expectancy of a firm in the Fortune 500 has declined from around 75 years half a century ago to less than 15 years and is heading towards 5 years.”

 

What drives your business? If you need help setting your own business goals, contact us at Blount Law. Our general counsel attorneys can work with you to analyze your business, set goals for your future and help you achieve them.

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Written by blountlaw

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