Magazine article Management Today

Brainfood: MT Masterclass - Shareholder Value

Magazine article Management Today

Brainfood: MT Masterclass - Shareholder Value

Article excerpt

What is it? Shareholders invest capital, which company directors manage, generating profits. Some profits are reinvested, and some returned to shareholders as dividends. As the company flourishes, its share price rises, which means more capital growth for shareholders. That's the theory.

In practice, 'shareholder value' has become a euphemism for getting the share price up fast. This wards off predators and makes executive share options attractive. But the share price is a fickle beast, a dubious guide and an unforgiving master. Getting it up and keeping it up are two very different things.

Where did it come from? Harvard Business Review has a lot to answer for. In 1981 it published a piece by Dr Alfred Rappaport of Northwestern University entitled 'Selecting strategies that create shareholder value'.

It updated ideas he'd outlined 10 years earlier in Information for Decision Making. But once HBR has popularised an idea, you can't stop people talking about it. …

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