Why Shareholder Value Management Still Matters

Why Shareholder Value Management Still Matters

     
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About the Commentators
  • author image
    Gerry Hansell
    Gerry is a BCG Fellow, senior partner and managing director in the Chicago office, and he leads the firm's Corporate Development practice in the Americas region.
  • author image
    Eric Olsen

    Eric is a senior partner and managing director in BCG’s Chicago office, and he is a global topic leader for Shareholder Value Management within the Corporate Development practice.

 

Why Shareholder Value Management Still Matters

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  • Critics argue that managing for shareholder value contributed to the global economic crisis by encouraging executives to overemphasize the short-term, oversimplify their company's actual performance, and overpay for dangerous risk-taking by corporate management. What's more, considering that in late 2008 many investments declined in market value by half or more in the space of a few short weeks, why should we still trust shareholder value as a relevant measure of corporate performance?

    To blame the concept of shareholder value management for such negative outcomes is to mistake remarkably poor—and in some cases, self-interested—corporate governance for defects of principle in the idea itself. Understood correctly, the principles of managing for shareholder value are simple: First, ensure that a company delivers enduring economic returns above the cost of any new capital it employs; and second, increase the returns earned by its existing capital over time.

    Read the full piece at Bloomberg Businessweek.

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