As investors, we care deeply about long-term shareholder value. Paradoxically, however, this doesn’t mean that we believe the pie should be cut in our favour. Some of the most enduring companies, and the founders that built them, put customers and employees first, compelling patient shareholders to reap their asymmetric benefits later.

That may sound counterintuitive: owners of the business accepting what’s “left over.” Yet over time, this order of priority creates more for everyone. In any other order it simply leads to worse outcomes. In other words, by serving customers and employees first, businesses expand the pie, including the piece available to the patient shareholder. In our experience, not all shareholders have the emotional resilience for delayed gratification, but if they do, supernormal returns can follow.

Let’s look at some examples to bring this to life:

Jeff Bezos has famously gone to great lengths to explain how customers are Amazon’s first and foremost priority – even leaving an empty chair in meetings as a representation of the customer. Back between 2012-14, in becoming ‘Earth’s Most Customer Centric’ company, Amazon was under scrutiny for overly prioritising the customer at the expense of shareholder profits (in 2012 it reported a net loss on $61 billion of sales). One journalist, who had previously written an article entitled Amazon Is a Great Company Because It Has the Most Generous Shareholders in the World¹, described it as follows: “as best I can tell, [Amazon] is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus.”² Another said in 2014: “It’s hard not to cheer Amazon and its founder Bezos for loyally serving customers — unless you’re one of Amazon’s investors. In that case, it’s becoming easier to want to get just a little more out of each customer and give them a little less, for a little profit.” ³

Yet, utilising the miracle of hindsight, let’s look at Amazon’s total shareholder return since 2012:

It seems hard to argue that a ~27% p.a. annualised return is that of a charitable “not for profit” organisation.

Did Jeff have an epiphany and suddenly flip from a customer-obsessed organisation to a shareholder-oriented one? Not at all. Margins have indeed expanded slightly, but shareholder value was always front and centre. From Amazon’s very first shareholder letter in 1997, Jeff made it very clear that they “believe that a fundamental measure of our success will be the shareholder value we create over the long term”. This, he later stated in 2004, would be defined by cash profitability ⁴ – “Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share.”⁵ This wasn’t in conflict with their customer obsession, but complementary. In Jeff’s words, “More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers… Take a long-term view, and the interests of customers and shareholders align.” ⁶

Amazon is not alone in having faced this ‘charitable’ criticism in its earlier days, nor in advocating that the constituents need to be considered together.

Costco too was accused of treating shareholders as second-class citizens, only allowed to scoop up the residual after customers and employees had been well cared for.⁷ But as Jim Sinegal, the Costco co-founder and former CEO, himself explained – shareholders were always in his line of sight:

“As a company, we had to do four things:
We had to obey the law.
We had to take care of customers.
We had to take care of our people.
We had to respect our suppliers.
If you did those four things, pretty much in that order, then you are doing what you have to do ultimately as a public company, which is to reward your shareholders.” ⁸

Another titan of enduring business and value creation, Sam Walton expressed a similar order of priority: “What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates.” ⁹

These organisations created durability not from explicitly maximizing the shareholder slice but from ensuring that customers and employees were advantaged first.

Robustness

Is there a ‘right’ share of value between constituents? To try and answer this we borrowed Nick Sleep’s Robustness Ratio.¹⁰ The primary role of this framework is to help evaluate the size of the ‘moat’ around a price-oriented company¹¹, or their durability, by quantifying the value customers and employees are receiving versus the shareholders. The higher the ratio, the more customers and employees are taking from the pie at the ‘expense’ of the shareholder – and vice versa.

Simply:

Of course, measuring customer “savings” depends heavily on the basket of competing goods and services you create since there is not always an obvious like-for-like. Helpfully, in some cases, the company does the hard work for us. For example, Nubank claimed it saved customers more than $11 billion in banking fees in 2023 and Wise likewise claims it saved customers £2 billion in foreign exchange fees in FY2025. In Amazon’s case, we used a different method to Jeff himself, who made his own tally of constituent value creation in 2020.¹² Duolingo and Spotify are probably the most subjective in our list.

Does a high ratio mean that shareholders are being swindled? Should the Duolingo CEO and Founder Luis Von Ahn have raised prices or eliminated free learning altogether to narrow the gap between Duolingo and its competitors, taking advantage of the consumer surplus?

You can argue either way depending on what type of investor you are. We think the better takeaway is simply that Duolingo is much harder to disrupt today than it would be with a lower score. For a long-term oriented investor then, it follows that Duolingo is more likely to sustainably grow its future cash flows – and ultimately generate long-term shareholder value – than it would be with a lower score.

An important component of value creation that emerges from looking at these various enduring businesses is time.

Dynamism

Unfortunately, business performance is not linear, nor are their needs uniform through time. From this perspective, there should never be perfect equilibrium between a company’s customers, employees and shareholders – there is never a “right split”. If we look at Wise over the past four years (just focussing on customers and shareholders) you can see how volatile the ratio has been as our (imperfect) method gets buffeted by the swings in customer numbers and Free Cash Flow (FCF).

Generally, as a business is building a sustainable competitive advantage it should be more focused on establishing this moat by delivering exceptional value to customers and hiring the best employees, than immediately rewarding shareholders. If we were to take the Amazon’s, Interactive Brokers’ or Sam’s Club’s ratios in their earliest years, I suspect they would be considerably higher than they are today. This is another way of saying that investment back into the business should naturally be much higher in the early days. It also follows that as a durable business starts experiencing increasing returns to scale, shareholders should be able to expect increases in the free cash flow generated per share.

Perhaps this conclusion is obvious. If so, it begs the question – why do companies that are deliberately aiming to create immense value over long time horizons still get accused of running ‘not for profit’ or shareholder-hostile enterprises?

We can think of two reasons:

1) A mismatch or misunderstanding of timeframes

A lot of these founders were/are aiming to build inter-generational businesses. So investing in customer/employee value in the ‘near-term’ to them could reasonably mean the next 10/20/30 years. For instance, if you listen to Kristo Käärmann, Wise is only just getting started (low single digit total addressable market penetration) and they’re almost 15 years into their journey, already processing probably around half a trillion pounds in money transfers a year between domestic and cross-border money movement. Contrast this to many investors who consider long-term to mean two to three quarters (the average hold period on the NYSE was recently found to be around eight months).¹⁴

2) A lack of transparency around trade-offs and steady-state free cash flow margins

Generational founders can find themselves almost exclusively obsessing over customer and employee value seemingly under the assumption that shareholders are happy bystanders content to wait patiently in line for their pay-off. Given point #1 this rarely works, certainly causing dissatisfaction. It’s hard to find a founder who has been as forthright and methodical in the way they communicate about the share of value between constituents over time as Jeff Bezos was in his time as CEO. And even then, investors, journalists and analyst expressed concerns consistently.

Likewise, a lot of CEOs seem unwilling or unable to provide investors with a long-term margin estimate. Without a discussion on timeframe or quantum, investors are left to estimate (hope?) what their payoff might look like down the line – after all shares are worth only the present value of their future cash flows. Is this because the CEO views expanding margins simply as a ‘cost’ to consumer and employee value? Perhaps they are just worried about hanging an albatross around their neck, knowing that they will be hassled about the target every quarter by short-sighted investors? Or is it just simply too hard to predict?

Alignment

One way enduring businesses seem to have tackled the supposed stakeholder trade-off is by turning customers and employees into shareholders. The founders at Nubank took pride in ignoring advice that their Brazilian employees wouldn’t value equity and that options were wasteful – at IPO, 76% of their employees owned Nu stock.¹⁵ At Wise, Kristo Käärmann wrote that the listing was less about profits or price, and more about customer ownership: “this moment is about our customers finally being able to become owners of Wise…”¹⁶ Thomas Peterffy, the founder of Interactive Brokers, went even further, asking non-customer passive funds not to buy shares so his customers could buy at lower prices: “Investment by passive investors, and by others who do not use our platform, tends to cause a run up in our share price. This makes it more difficult for our clients to purchase our shares. You may be considering investing in IBKR. We would like to ask you not to buy our shares unless you become an active user of our platform prior to doing so.”¹⁷ If your customers and employees are also your shareholders then there is no trade-off between them.

Conclusion

Prioritising customers and employees, even at the apparent expense of shareholders, is rational. Profiteering and margin-taking at the expense of longevity is value destructive for all parties. Shareholders who accept their role as last in line are effectively buying exposure to an asymmetric payoff. In complex systems, patient capital is rewarded not necessarily with a steady drip of value, but with compounding gains as the system endures. This is where substantial shareholder value creation can occur – as Peter Lynch said: “Any business that can manage to keep up a 20 to 25 percent growth for 20 years will reward shareholders with a massive return even if the stock market overall is lower after 20 years.”¹⁸

Notwithstanding, we believe founders/CEOs should be more forthcoming with shareholders around where the business is in its trajectory and what value sharing looks like now versus when it matures. As Warren Buffett believed: “companies obtain the shareholder constituency they seek and deserve.”¹⁹ If leaders outline a long-term aspiration for how they see value distribution unfolding, then shareholders can choose to opt in or out of that journey, depending on their objectives and timeframes. Those CEOs that can convincingly describe a multi-decade compounding journey centred on robustness, where shareholders are rewarded asymmetrically, are likely to attract multi-decade investors.

Takeaways

1. Value creation should not be a zero sum equation nor a tug-of-war between stakeholders. All should benefit from a growing pie versus one constituent benefitting disproportionately.
2. When building ‘robustness’, customers and employees should be prioritised, knowing that shareholders will get their slice eventually in enhanced terminal value.
3. The split of value capture is dynamic and will ebb and flow over a business’s life.
4. Transparency about who should expect value, in what timeframe and why is critically important. If a business is aggressively prioritising customers now, but strongly believe this will create a 100-year business with 50% FCF margins, then it should say so!
5. Shareholders should remain patient and let compounding work uninterrupted (to steal a Munger phrase). This is easier said than done in an investing universe that is getting more and more short-term. However, it’s easier if shareholders get the transparency mentioned above.

Ultimately, we think the first point is the most powerful. Companies should aim to expand the pie for all participants, but each has a role to play as the company scales. As Bezos said in his last ever shareholder letter as CEO of Amazon in 2020:  “If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with. Any business that doesn’t create value for those it touches, even if it appears successful on the surface, isn’t long for this world. It’s on the way out.²⁰”

Acknowledgment:

A big thank you to Jack O’Brien for helping me with this analysis.

References:

1. Matthew Yglesias, “Amazon Is a Great Company Because It Has the Most Generous Shareholders in the World”, Slate, 12 Dec 2012, https://slate.com/business/2012/12/amazon-s-zero-profit-business-strategy-it-s-amazing-but-someday-we-may-all-get-screwed.html ↩︎
2. Matthew Yglesias, “Amazon Profits Fall 45 Percent, Still the Most Amazing Company in the World”, Slate, 29 January 2013, https://slate.com/business/2013/01/amazon-q4-profits-fall-45-percent.html ↩︎
3. Jeremy Greenfield, “The Tug-Of-War Between Amazon’s Investors And Its Customers”, Forbes, 18 June 2014, https://www.forbes.com/sites/jeremygreenfield/2014/06/18/the-tug-of-war-between-amazons-investors-and-its-customers/ ↩︎
4. Amazon.com, Inc. 1998. 1997 Letter to Shareholders. Written by Jeff Bezos, 21 March 1998, https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.aspx ↩︎
5. Amazon.com, Inc 2005. 2004 Letter to Shareholders. Written by Jeff Bezos, 5 April 2005, https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.aspx ↩︎
6. Amazon.com, Inc. 2013. 2012 Letter to Shareholders. Written by Jeff Bezos, 12 April 2013, https://ir.aboutamazon.com/annual-reports-proxies-and-shareholder-letters/default.asp ↩︎
7. Nomad Investment Partnership Letter to Partners, 2001-2014, (2005). ↩︎
8. Jim Sinegal, “Business Is About More Than Making Money,” Directors & Boards, 19 February 2016, https://www.directorsandboards.com/uncategorised/singlebusiness-about-more-making-money ↩︎
9. Sam Walton, Made in America: My Story (New York: Doubleday, 1992). ↩︎
10. Nomad Investment Partnership Letter to Partners, 2001-2014, (2005). ↩︎
11. Sleep’s original criteria for applying this framework was price-orientation: “This ratio is more appropriate for some companies than others, the prime criteria being that the customer proposition is based on price, such as exists at Costco, as opposed to an advertising-reinforced purchase such as Nike trainers.” ↩︎
12. Jeff assumed Amazon saves customers 75 hours a year in time shopping and applied $10 p/hour rate less the cost of Prime membership to get his customer value creation figure. Here is his full scoreboard for 2020:
    Shareholders $21B
    Employees $91B
    3P Sellers $25B
    Customers $164B
    Total $301B ↩︎
13. We excluded offline tutoring / classes but note that this is where subjectivity creeps in. ↩︎
14. ALTA Capital Management, “You’ve got to know when to hold ‘em”, March 2024, citing Guardian Capital using data from the New York Stock Exchange and Ned Davis Research to December 31, 2023. ↩︎
15. Nu Holdings, “Letter From Our Founders”, Prospectus, December 2021. https://www.sec.gov/Archives/edgar/data/1691493/000119312521314359/d213207df1.htm ↩︎
16. Wise PLC, “Letter From Our CEO and Co-Founder”, Prospectus, July 2021. https://wise.com/imaginary-v2/images/66edcbaae5e13b596fd612fede0a9482-Wise_Prospectus.pdf ↩︎
17. Interactive Brokers Inc., “Founders Letter”, Written by Thomas Peterffy, https://investors.interactivebrokers.com/en/general/about/founders-letter.php ↩︎
18. Peter Lynch, “Use Your Edge”, Worth Magazine, March 1997, https://pages.stern.nyu.edu/~adamodar/New_Home_Page/articles/Lynchgrowthstocks.htm ↩︎
19. Berkshire Hathaway Inc., “Chairman’s letter to shareholders”, Written by Warren Buffett, 3 March 1979, https://www.berkshirehathaway.com/letters/1979.html ↩︎
20. Amazon.com, Inc. 2021. 2020 Letter to Shareholders. Written by Jeff Bezos, 15 April 2021, https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders ↩︎