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How can management deliver value for shareholders?

Although there is growing discussion about share value as a management goal, the ways to enhance value sometimes seem mysterious to executives. Indeed, the commentary surrounding the recent accounting scandals has questioned the validity of share value maximization as a business goal, but has yet to clarify the reforms that are really needed. Since 1980, though, a wealth of evidence has grown that reveal five proven ways to increase share value. One of them is pleasant for managers and employees, but it is very difficult to accomplish. The other proven paths to increased share value are easier to implement, but are unpleasant for managers. Value-based incentive systems often focus exclusively upon cash flows relative to resource investment; yet, share values are often based on much more than just the expected cash flows from already-existing operations. Indeed, the majority of share value in some firms may derive from the anticipation of growth opportunities (or other real options that enhance value by reducing risk or adding flexibility). So, the reforms needed in incentive systems should aim at motivating all of the proven paths to increase value for shareholders, and incorporate known methods for enhancing the value of real options.

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Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 7 (2003)
Issue (Month): ()
Pages: 93-101

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Handle: RePEc:ris:jofitr:1304
Contact details of provider: Postal: 120 Broadway, 29th Floor New York, NY 10271
Phone: +1 212 284 8600
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