Michael J. Mauboussin
& Alfred Rappaport

Creating Shareholder Value

A Guide for Managers and Investors

The ultimate test of corporate strategy, the only reliable measure, is whether it creates economic value for shareholders. After a decade of downsizings frequently blamed on shareholder value decision making, this book presents a new and in-depth assessment of the rationale for shareholder value. Further, Rappaport presents provocative new insights on shareholder value applications to: (1) business planning, (2) performance evaluation, (3) executive compensation, (4) mergers and acquisitions, (5) interpreting stock market signals, and (6) organizational implementation.

Readers will be particularly interested in Rappaport's answers to three management performance evaluation questions: (1) What is the most appropriate measure of performance? (2) What is the most appropriate target level of performance? and (3) How should rewards be linked to performance? The shareholder value approach presented here has been widely embraced by publicly traded as well as privately held companies worldwide. Brilliant and incisive, this is the one book that should be required reading for managers and investors who want to stay on the cutting edge of success in a highly competitive global economy.

Saving Capitalism from Short-Termism

How to Build Long-Term Value and Take Back Our Financial Future

Business leaders today obsess over quarterly earnings and the current stock price—and for good reason. Corporate incentives typically focus on short-term profits rather than long-term value creation. Nothing is more harmful to businesses—and to the broader economy. Few business thinkers in recent decades have contributed more to this subject than Alfred Rappaport. As an author and educator, Rappaport is a pioneer in developing the principles of values-based management and is an acknowledged authority on how to make long-term shareholder value the essential driver of corporate strategy. His latest work, Saving Capitalism from Short-Termism, is a clarion call for conquering the addiction to short-term profit—and getting on the path to building long-term value.

Rappaport’s solution to short-termism is simple but profound: business leaders must align the interests of corporate and investment managers with those of their shareholders and beneficiaries. His plan includes gaining the commitment of senior management and the board to long-term value creation as their governing objective; incentives that reward CEOs, operating-unit managers, and front-line employees for delivering superior long-term value; a major overhaul of corporate financial reporting that provides more relevant and transparent information to investors and other financial statement users; performance fees that align the interests of investment managers and shareholders; and actively managed funds with concentrated holdings and long investment horizons that tilt the odds in favor of better long-term shareholder returns.

If corporate and investment leaders do not address the problem of short-termism, more financial crises may be in store—and they are likely to be more severe and broader than the meltdown in 2008. The trade-off is clear: we can continue to pursue short-term profit at the expense of economic vitality, individual financial security, and perhaps even the dominance of the free-market system itself. Or we can take the responsible path outlined in this book and generate innovation, quality, growth, and value over the long term.