McKinsey: What led Lloyds TSB to focus on shareholder value as its core measure of performance?

Pitman: It started with some interesting philosophical discussions that I had with the board just after becoming chief executive of Lloyds in 1983. At that time, we had all the usual motherhood objectives about being good to shareholders, good to staff, and good corporate citizens. However, these fine aspirations had no impact whatsoever on our performance. So we decided to ask ourselves what our goals should be.

I conducted a survey of our general managers, and they all told me how successful we were. But I informed them that at least one group of people did not agree: our shareholders. You only had to look at our share price, which was below our net asset value, as it was for most banks at that time.

I felt that unless we had a clear understanding of what we were trying to achieve, we couldn’t establish the right performance measures. So we had several discussions on the board about what constituted success, and whether we needed several objectives or just one. It was important to have that debate; some companies never do.

We decided we would...