By Peter Kontes
Compliment for The CEO, process, and Shareholder Value"Peter Kontes provides a clear-eyed framework for making the head administration judgements that experience a wide and lasting effect on corporation functionality. in case your agenda simply permits you time to learn a number of books a 12 months, this could be one among them."--James E. (Jes) Staley, CEO, JP Morgan funding Bank"This is a firstclass e-book which can make a distinction in achieving�Read more...
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Additional resources for The CEO, strategy, and shareholder value : making the choices that maximize company performance
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This chapter addresses these issues and suggests how the CEO can choose performance objectives that are fully aligned with the highest value business unit and company strategies. ASPIRATIONS The proposition that maximizing shareholder value is the ultimate objective of a publicly owned company is the subject of constant debate, even among CEOs. In Europe, ‘‘maximizing shareholder value’’ is often seen as a synonym for the ‘‘Anglo-Saxon’’ model of supposedly cutthroat capitalism, wherein the social costs of private wealth creation are alleged to exceed the benefits.
The central problem with earnings growth is that it can be purchased at any price. If a sustainable $1 increase in earnings per share can be purchased by investing $5 per share, that is probably a good thing. But if that same $1 of earnings per share is purchased by investing $20 per share, that is almost certainly a bad thing. 10, three companies with identical earnings growth performance are compared to drive home this point. In this example, each of the companies achieved its goal of growing earnings at 15 percent per year for five years.
So what are the right performance targets for this business unit? 1 The Gold Strategy Business Unit Options in a Product Market Where EP Growth Is 5% Red Strategy Blue Strategy Gold Strategy Focus: Price Focus: Service Focus: Quality EP0 = $6M EP Growth: 4% Equity Value: $200M EP0 = $6M EP Growth: 5% Equity Value: $220M EP0 = $6M EP Growth: 6% Equity Value: $250M Performance Objectives Met Financial Threshold (EP > 0) Yes Yes Yes Strategic Threshold (business unit EP growth equal to or greater than product market EP growth) No Yes Yes Maximize EP Growth No No Yes preceding example, this is 6 percent per year over the next five years.