Since the late 1970s, when American companies were fat and complacent, the focus of American business has been on the bottom line.
Spurred on by activist shareholders, private-equity firms, and bonuses based on stock prices, corporate managers have become obsessed with maximizing quarterly profits.
This new focus has produced remarkable results.
Corporate profits have hit an all-time high as a percent of the economy.
Over the past three decades, big American companies have gone from having below-average profit margins to the highest profit margins in history (see chart at right).
Unfortunately, this obsession with profit maximization has come at a cost.
By focusing their entire effort on the bottom line, many American companies have reduced their value to the other constituencies that truly great companies serve, namely customers, employees, and society.