As a business person it is my goal to create value.

Value is created when the whole is more than the sum of the parts, when a way is found to make 11 widgets from the same labor or materials that used to only make 10. Value is created when a neighborhood is rejuvenated or a well-designed building is constructed, providing homes that nurture community as well as shelter the body.

I find no honor, joy, or pride in finding ways to merely transfer value.

Value transfer occurs when a CEO packs the board of directors with his buddies and they vote him lucrative stock options for mediocre performance. Money has been transferred from one pocket to the other (shareholders to CEO), but the world is not better off for the transaction, no net increase in prosperity has occurred. It is a zero sum game. CEO wins, shareholders lose. Might even be a net loss, as other employees of the organization become demoralized seeing top management ignoring their fiduciary duties to the nominal owners of the company. Every organization is the shadow of its leadership; when the top ignores its responsibilities to the stakeholders, the balance of the organization generally follows suit.

All too often attempts at value transfer, motivated by naked greed with no moral restraint or sense of social obligation, result in a loss of value (wealth, prosperity, net worth) to society. The subprime mortgage mess is a classic example of value being destroyed. Others are distribution channels with archaic middleman structures and excessive and/or undisclosed commissions. Misalignment of economic incentives is a good indicator that value transfer is occurring with a good chance of value destruction to follow. When the broker placing a mortgage loan makes money whether the loan is good or bad, when the CEO makes mega bucks no matter how well the shareholders fare, you can be certain that net value is being destroyed.

To me, commerce is a calling, and entrepreneurship can be a service to society of the highest order. Business can and should be the method by which we create and husband the resources that clothe us, shelter us, and nourish us and our loved ones. Properly done, capitalism harnesses human ambition to create the economic surpluses that support our institutions of research and higher learning and the medical facilities that succor us in times of need.

Yet at its unfettered extreme, unbridled ambition can equate to greed. A principled desire to create value and prosperity, and to harvest the rewards thereof, can quickly evolve into an unchecked gluttony, an insatiable desire to transfer value regardless of the harm done to others, the justness of the method, or any duty or obligation to other stakeholders.

I am not fond of government regulation. I sincerely believe “That government is best which governs least.” At the same time, one of the most basic roles of government is to insure that those in power do not abuse their power to rig the game in their favor.

Of late it seems that our society––for it is we who elect those who govern us, so the buck stops with us––has sanctified, or at least condoned by inaction, mere value transfer, therefore, at least by inference, has denigrated the honorable profession of value creation.

This is a classic from the NSC Blog archive. Originally posted April 9, 2008.