This content was created by GHION.AI . This content was uploaded by GHION.AI . This is a YouTube video titled "Rick Wallace: The 3 Constituents: Investors, Customers and Employees" (created 2011-04-26). It contains a single-speaker talk/monologue (labelled SPEAKER A, presenter indicated by the title as Rick Wallace) about balancing the needs of three stakeholder groups—shareholders/investors, customers, and employees. The speaker uses KLA-Tencor as an example, discusses market share and pricing premiums, the importance of employee motivation in high-technology firms, and the trade-offs managers must make between short-term shareholder pressures and long-term company health.
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So I certainly think about these three constituents and I think everybody starting businesses or entering them needs to recognize there are multiple constituents and they are not the same. Shareholders are certainly different or investors are different than customers which are different than employees, but they all matter. And I used to ask this question in internal meetings, I would say which of these is the most important? And of course, the finance people would say shareholders. And the sales guys would say the customers are. And the HR people would say employees are. And it's a bit of a trick question because you can't ignore any of these constituents, whether you're private or public. And the essence of this is shareholders, they want to know why they should invest in you. Whether you're private or public, why should they put their money in you? And that's about a financial transaction. And what they want to earn in return for that investment, much— it has to match the risk associated with the investment. So obviously if you have more risk, people are going to expect higher return potential. And as companies get more stable— and this is measured, as you all know, it's measured against very safe investments like T-bills. But their needs are different than customers'. Customers are going to ask why should they buy from you? They're going to have choices. And we think a lot about that at KLA-Tencor is why should customers buy our product? How do we meet their needs going forward and how do we make sure that, that we secure the market shares that we've enjoyed? In most of the markets we serve, we're probably somewhere around 70 to 75% market share. And the reason we're there is because we anticipate what customers' needs and we develop solutions for them in anticipation of what they're gonna need. We also charge— typically have premiums in pricing. We get anywhere from 20 to 30% higher prices than all our competitors. And you can only do that if you provide unique value. But the other constituent that's very important is employees and why should people work for you. And clearly in a very small group, then perhaps everybody has a large share of the equity and there are different motivations. But as any enterprise gets larger, this becomes more and more important. And especially in fields like ours, which are high technology, the only real long-term advantage you have is your people. Because they're the ones that create the new products. And so to ignore your people is to lose your competitive edge. And a lot of companies have done that, and that's why you see companies that go up and come down, is they don't understand that they have to motivate their employees. There is a trade-off that you have to make, and in my job, you could try to pretend that you can optimize all three, but the reality is you are making trade-offs. And the things that you would like to do for your customers or your employees might not be beneficial to shareholders. And so you have to be mindful of that as you manage the company. And clearly you want to take a long-term view, but you do get pressures from shareholders that aren't so long view— long-term.
