The World’s Dumbest Idea
Report

The World’s Dumbest Idea

James Montier
GMO, 2014
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Editorial Rating

8

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Recommendation

Since the 1990s, maximizing shareholder value has been a major mission of company executives in the United States and abroad. However, investment specialist James Montier says that upholding this ideal is little more than a smokescreen for propping up executive compensation. In fact, Montier claims that stock buybacks and other actions designed to enhance shareholder value produce tangible benefits only for those with substantial equity-based rewards. getAbstract recommends his witty, engaging and research-based “tirade” on shareholder value to executives, board directors and others responsible for assuring good corporate governance.

Summary

Until recent times, goals such as customer satisfaction and employee respect dominated company mission statements. But today, firms prioritize shareholder value maximization (SVM). When IBM did so in the 1990s, its total returns rose, seemingly validating SVM. But Johnson & Johnson’s returns climbed even higher at the same time, despite putting its clients, workers and communities first and its shareholders last. Since SVM became a top priority, firms’ total adjusted real returns have underperformed 1940–1990 returns.

Why has SVM gone awry? Shares and options have become...

About the Author

The author of several books, James Montier is currently part of GMO’s asset allocation team.

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