Part 2: How Customers Vanished from the Boardroom
In Part 1, we saw how customer excellence—led by the Baldrige Award—became a board-level bragging right. It was a national priority. It was how companies competed.
So what happened? Customer excellence didn't just fade away. It was replaced.
The board’s audience changed. They stopped answering to a holistic set of stakeholders and started answering to a single, powerful new boss: the institutional shareholder.
The New Owners Take Control
For much of the 20th century, stock ownership was scattered among millions of individual investors. Boards and managers had enormous discretion.
That world is dead. The new owners weren’t people. They are institutions and by 2006, they controlled over 73% of U.S. equity.
The map changed. So did the rules.
This wasn't a passive shift. It was a seismic and fundamental rewiring of the incentive structures in corporate America. The people who owned the company changed, and they had a new, much clearer definition of good management.
A New North Star: The Quarterly Stock Price
How did these new owners enforce their will? Simple: they hijacked executive pay.
The ideology of shareholder primacy—the belief that a corporation's sole purpose is to maximize shareholder value—was institutionalized through executive compensation.
Boards, under pressure from these new, powerful owners, began to tie massive pay packages (stock options, performance grants) directly to one metric: short-term stock performance.
This created a new North Star for the C-suite.
The goal was no longer the long, patient, complex work of building sustainable quality (like Baldrige). The goal was to hit the quarterly EPS number, juice the stock, and trigger the bonus.
Anything that served that immediate goal—cost-cutting, financial engineering, stock buybacks—was good leadership. Customer experience became a cost center. Not a power lever.
Swapping the Blueprint for a Toolkit
With a new goal, boards needed new tools.
The holistic, customer-centric Baldrige framework was shoved aside for what researchers call a substitution effect. Boards gravitated toward frameworks that served the new financial imperative:
Six Sigma: Championed by GE's Jack Welch , this was quality redefined as financial optimization. It offered a data-driven, project-based way to eliminate defects and, most importantly, drive down costs. It spoke the language of the C-suite: ROI.
ISO 9000: This wasn't about excellence; it was about conformity. It provided a universal assurance that a company had consistent processes in place, which was good for global trade but had less than 10% of the scope of the Baldrige criteria.
Baldrige forced boards to listen to customers. Six Sigma and ISO 9000 let them ignore customers while pretending they still did.
The final, symbolic end of an era came in 2011, when Congress eliminated all federal funding for the Baldrige Award. The government officially abdicated its role as a champion of holistic, long-term corporate stewardship.
The message was clear: The market was in charge now. Quality was no longer a national priority.
The Great Divergence: The Receipts
So what happens when an entire economic system is incentivized to prioritize short-term financial extraction over long-term customer value? Glad you asked.
When the incentives shifted, CX flatlined and profits soared. That’s not coincidence. That’s design.
For the last two decades, we’ve seen a Great Divergence in the data:
Customer Satisfaction Flatlined: The American Customer Satisfaction Index (ACSI), the national cross-industry measure, has stagnated. As of 2025, national satisfaction is roughly equivalent to where it was twelve years prior.
Corporate Profits Soared: During that same period, corporate profits after tax (as a percentage of GDP) soared to unprecedented heights, reaching all-time highs and remaining at elevated levels.
This isn't a coincidence. It's the predictable outcome of a governance model that incentivizes value extraction over value creation.
Companies learned they could squeeze customers, deliver a mediocre-at-best experience, and still post record profits because their real audience (institutional shareholders) was rewarding them for it.
The Governance Blind Spot
How do boards get away with it? Because the system was built to let them. A structural gap in corporate governance means boards can't see the customer, even if they wanted to.
1. The Regulatory Blind Spot: The rulebooks are silent. The Sarbanes-Oxley Act (SOX) and SEC Regulation S-K force boards and executives to be personally, and even criminally, liable for the accuracy of financial reporting.
But for customer metrics? Crickets.
There is a complete absence of mandatory, standardized reporting on customer-centric metrics. This creates a profound asymmetry in accountability. A board faces severe legal and financial risk for a 1% error in its EPS. It faces zero direct regulatory risk for a 20-point drop in its NPS.
What gets measured gets managed. Customers aren't measured, so they aren't managed.
2. The Proxy Statement Blind Spot: The proxy statement is the primary document through which a company's board communicates with its shareholders. Its a direct window into the board's priorities.
Go read one. You'll find pages of detail on:
Executive Compensation (how pay is tied to stock performance)
Board Composition and Governance
Risk Oversight (especially cybersecurity)
Environmental, Social, and Governance (ESG) criteria (like climate risk and DEI)
What you won't find is a single, standardized section on customer satisfaction, retention, or loyalty. The ‘S’ in ESG now means employees and communities. Not the customers who fund the whole operation.
3. The Investor Blind Spot: This is the final nail. The real audience—the institutional investors and the proxy advisory firms that guide them (like BlackRock, ISS, and Glass Lewis) doesn't ask.
Their voting guidelines set the de facto standards for good governance. They have detailed policies on pay-for-performance, climate risk, and board structure.
They don't identify customer satisfaction or retention as a specific key performance indicator that they monitor or on which they base their voting decisions.
If the people who own the company don’t ask about customers, the board won’t either.
It’s Not Personal. It’s Power
Boards aren’t ignoring customers because they’re bad people (mostly). They’re ignoring customers because they’re rational.
They’re playing the game they’ve been given.
The power structure changed and when power moves, everything else becomes optional.
In Part 3: We’ll cover how to fix this. Not by begging boards to care, but by making the customer a shareholder issue again.