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Creating Shareholder Value

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Creating Shareholder Value

A Guide for Managers and Investors

Free Press,

15 min read
10 take-aways
Text available

What's inside?

Shareholder, CEO, investment banker or portfolio manager? Read this Wall Street classic to get back to basics that matter.

Editorial Rating

8

Qualities

  • Innovative
  • Applicable

Recommendation

For the past 12 years, The Wall Street Journal has published Dr. Alfred Rappaport's brainchild, the Shareholder Scoreboard. This special section lists 1,000 of the largest U.S. corporations (representing 90% of all listed equity values) and shows statistically how "shareholder-friendly" each one is. This journalistic feature popularizes Rappaport's "Shareholder Value" (SV) theory among institutional and individual investors. Investors use this theory to make equity commitments that reflect the author's economics-based criteria. Frankly, the lay reader who has not majored in economics, or in corporate accounting and finance, will find Rappaport's book abstruse. But it leads the way for the informed, inquisitive investor who seeks "business enlightenment" and Wall Street success. Do not be thrown off by the original 1986 print date. A classic is just that, a book that can be read and wisely used for decades. The small, silent shareholder revolution that Rappaport started is far from over. By now, shareholder analysis has become part of the mainstream for hundreds of big companies (though they accepted it gradually). SV is far from perfect as a corporate strategy indicator. The true worth of this book for CEOs and other executives resides in its lessons for implementing the SV approach throughout a corporation. getAbstract recommends it to all three informed constituencies of every public corporation: executives, employees and shareholders.

Summary

Where Are the Shareholders' Yachts?

The idea that a public corporation's main task is to make its shareholders wealthier caught on in the last generation and it is likely to become a universal practice in the next generation. This orientation, known as the "Shareholder Value" (SV) approach, weakens corporate managers' old, established habit of focusing on generating rapid quarter-by-quarter earnings results. Instead, it forces them to look ahead to fulfill their stockholders' best interests. This change was driven by the 1980s wave of corporate mergers and consolidations, where managerial mistakes created red-hot opportunities for cheap takeovers by raiders and other jackals.

Shareholders have even voted out shortsighted CEOs who won quarterly skirmishes, but lost big-time battles. Such shop cleaning effectively dethroned ranking executives at more than a half dozen Dow Jones Index companies.

Consequently, to save their jobs and serve their shareholders, executives increasingly have turned to longer-term strategies that offer the most logical tactics for their companies and, as a consequence, increasingly satisfy the investment criteria of their shareholders...

About the Author

Dr. Alfred Rappaport is a professor at Northwestern University, and an international business consultant. He has written three business books.

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