I always think that corporate governance issues are best approached by taking the simplest kind of organisation, and working upwards from that. So, in that spirit, let us begin by imagining a sole trader who starts off in business running a shop.

At the beginning, he is the only member of staff, and he spends all day behind the counter meeting customers and serving their needs. It goes without saying that we are talking here about a family business, whether or not any members of his family are actually directly involved.

There is no need to remind this business person that the customer is important: every day his experience at the counter of his shop reminds him that if he does not meet his customers? needs, he will very soon go out of business. But if he remains attentive to that key fact, the business will probably soon grow to the point where he needs to take on extra staff.

This presents him with his first challenge to growth: he must learn the art of management, which I define as the art of getting things done through other people. It also presents the first opportunity for conflict to arise ? because now, in addition to thinking about his customers, he also has to think about his staff.

But so long as the business operates in only one shop, this is a relatively small problem. The owner is still on the premises every day, and he finds it relatively easy to watch over his staff and to gently correct them when they go wrong. Any successful business person will soon find ways of transmitting his philosophy of doing business to those who work along with him.

Let?s fast forward now to the next stage of growth: the business is so successful that the owner decides to open up a second shop in a different location. Now comes the second challenge of growth: how is the owner to make things happen his way when he is not (because he can?t be) around all the time?

To do this he must put in another level of management between himself and the customer he once dealt with at first-hand. He must employ a manager to manage each of his individual outlets, and now his task is not just of training staff to look after customers but to train managers who can in turn manage those in the front line. He himself will now divide his time between the two shops, making sure the managers act the way he wants them to.

The conflict between putting the customer first and the other things that have demands on his time now becomes one step more acute. Whereas in the beginning he used to spend virtually his whole day looking after his customers, now he has much less time to devote to this task.

All too soon, however, a further barrier to growth is likely to arise: let's imagine that the business goes on growing, goes on being successful ? to the stage where the number of shop managers grows beyond the point where the owner can exercise hands-on control on all of them. Out of this grows the need for a further tier of people, operating perhaps an area manager function.

This is not the end of the matter, though ? not by a long shot. Side by side with the growth of front-line people, as the business grows, is a necessary growth in functions that are best carried out centrally rather than in the individual shop.

When the owner ran just the first shop, for instance, he himself did all the buying for that shop, along with all the other housekeeping tasks that a business demands. But now, as the owner of what is fast becoming a large group of shops, he realises that for efficiency and consistency a whole host of functions can be better done centrally ? buying, marketing, personnel management, training, financial control, IT development, and so on.

Soon, almost before he realises it, the person who ran a one-man shop is now sitting at the top of a conventional business pyramid ? with several tiers of management between him and the end-customer, and a growing army of functional specialists who may never have direct contact with the customer at all.

Let me add a further brick to this growing edifice, before we stand back to look at some of the implications of this inevitable progression. Another question that arises as the business grows is the issue of ownership.

Perhaps at the beginning he has financed his expansion through loans from the bank. If he is lucky, he can go on doing that, but he also may find the need to bring in other investors into the business ? either by taking on partners, whether they are sleeping partners or working partners, or by taking the extreme step of offering shares in the company to the public.

Either way, he has added a whole new class of stakeholders in his business. Even if he keeps the whole thing within his family, he also has additional stakeholders to think about ? people whose interests may not always coincide with his own, especially when it comes to a confliect between the short-term and the long-term.

So what we have in the fully-fledged business is a whole variety of stakeholders ? from customers, to staff, to management, to providers of specialist functions within the company, to people who share the ownership along with him. All these people make demands on his time, demands which seem to get greater all the time.

And, if he is not very careful, his business will be risk of losing the very element that made it a success in the first place ? closeness to the customer and a readiness to respond quickly to the customer?s changing needs. The fact that customers? needs change all the time makes this dilemma more acute ? it is because of this that the owner cannot rely on his early experience of dealing with customers directly, since that may very often lead him to respond to a situation that no longer exists.

Adding to this problem is that the owner now has many other distractions that come between him and the key task of serving the customers? needs. As a business success, he is likely to be in demand to serve other organisations ? business associations, community groups, or even the boards of other companies. As the leader of a growing number of people and as an ambassador for his company, he will find increasing demands on his time for purely ceremonial functions. And all this before he devotes attention to fighting off competitors and planning a strategic future for the business!

Meanwhile, back in the company itself, the growth of the business means that the customer becomes only one of the concerns of people working in it. The people who don?t have direct contact with customers have obvious difficulties here. But for everybody, the temptation is always to allow internal matters to hog their attention ? their promotion and their rewards, relations with their colleagues and managers, internal politics? all these compete with the customer focus.

What is common about all these developments is that they push the customer, and the customer?s needs, farther and farther away from the centre of the business. Most of the customer service problems in companies today arise, in my opinion, from this key fact: the customer is no longer the most important focus for everybody working in the company.

This is, I believe, a serious shortcoming with the stakeholder model. Of course we are right to look on all these different people as stakeholders. Of course we are right to believe that we should run our business having regard to all their interests. But where we go wrong, I think, is in thinking that all stakeholders are equally important. If we believe that we are setting ourselves up for conflicts that are very difficult ? perhaps even impossible ? to resolve.

Let me pin my colours to the mast here. For me, the most important stakeholder in the mix is the customer. The reason for this is that without the customer there is no business. Going back to the very start of our imaginary company, when there was just the skopkeeper and his customers, we see this more clearly. To have a business at all, you must have a person running the business on the one hand ? and for many businesses, one person is all you need to run it. But on the other hand, you need a customer (at least one customer!) if the business is actually to do any business.

As you grow, and the mix becomes more complicated with the addition of new stakeholders, it is tempting to think of the customer as just one more stakeholder among a growing crowd. This is, I believe, a fundamental mistake. The customer should always remain number one.

What this means is that the customer should be at the centre of all major business decisions. In my business career, I always found that it simplified things enormously to ask, when faced with a decision: how will this help us to serve better our customer's needs? Is this proposal more likely to bring our customers back to us, again and again? If the answer to either or both of these questions was ?no?, it put a major question-mark over the wisdom of taking the proposal forward.

That sounds very simple, and indeed it is ? but the difficulties of actually doing it on a daily basis are enormous because of the conflicts posed by all the competing stakeholders. There is an additional complication, and it is this: alone of all the stakeholders, the customer is not usually beating your door down looking for attention. All too often, dissatisfied customers vote quietly with their feet. Instead of complaining, a lot of the time they simply shop with your competitor. Meanwhile, you are devoting your attention to those people who are in fact beating at your door.

What can you do about this?

My strong belief is that this problem is a leadership issue. Keeping a company customer-driven must come from the top: everybody must see it as the central concern of the leader of the business, who must show the way by setting an example. It is not something you can delegate.

Key to this is that the leader must always spend a good deal of time in direct contact with the end-customers of the business. For over 40 years I myself spent at least one day a week travelling around to our individual shops ? meeting as many customers as I could by being visible on the shop floor, helping with the packing of customer bags at the check-out, and so on.

Part of this approach was to encourage other managers in the company to do the same. For head-office managers, I insisted that they did their own shopping at least once a month, as well as spending some time on the shop floor the same way I did. For managers in individual shops, I deliberately made sure their own office was dingy, small and uncomfortable, to bring home to them that their real workplace was on the floor of the shop, where they would be visible to customers and approachable by them.

However, as my company continued to grow, I felt the need for another way to keep in touch with customers? changing needs. So I began holding weekly customer panels, at which a small group of volunteer customers would sit down with me for an hour or so and discuss anything that was on their minds about our operation.

These were not formal ?focus groups? organised by an outside market research company or even by members of an internal marketing department. Instead, they were a highly informal means of direct contact between the owner of the company and individual customers. I saw my role as mainly one of listening, and I would leave the agenda to be set largely by the customers themselves.

Over the years, these meetings proved invaluable ? both in getting small operational details right and in discovering major innovative ideas that added considerably to our bottom line. An incidental advantage was that at our regular Monday morning management meetings, I was always the one who was the closest in touch with what our customers were thinking! I did not have to rely on second-hand intelligence to be informed.

It follows from what I have been saying that I believe at least some of the conflicts that arise in the course of business need not really be conflicts at all, if we first get our priorities right. I suggest to you that a key part of good governance should always be to put the customer first ? ahead of the staff, ahead of the management, ahead of the specialists, ahead of the other shareholders in the company.

This is, of course, not for a moment to suggest that you should ever ignore all these important people ? that would be madness. But remember that their interests should always be subsidiary to the element in the equation who pays everyone's salary at the end of the month ? and that is the customer, first, last and always.