- Hardcover: 224 pages
- Publisher: Free Press; Revised, Subsequent edition (December 1, 1997)
- Language: English
- ISBN-10: 0684844109
- ISBN-13: 978-0684844107
- Product Dimensions: 6.1 x 0.9 x 9.2 inches
- Shipping Weight: 1 pounds (View shipping rates and policies)
- Average Customer Review: 13 customer reviews
- Amazon Best Sellers Rank: #659,709 in Books (See Top 100 in Books)
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Creating Shareholder Value: A Guide for Managers and Investors Hardcover – December 1, 1997
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Should a company's management be most accountable to employees, customers, or management itself? In Creating Shareholder Value, Alfred Rappaport argues that management's primary responsibility is to company shareholders. First published 12 years ago, the ideas put forth by Rappaport have since become commonplace in companies around the world.
Rappaport eschews the most common measures of a company's performance, such as price-to-earnings ratios ("Cash is a fact, profit is an opinion"), return on investment, and equity measures, instead concentrating on developing a shareholder value approach that measures "value drivers" such as sales-growth rates, operating profit margins, and cost of capital. This revised and updated edition addresses the issues of corporate downsizing and the social responsibilities of business. It also includes new sections on the value of mergers and acquisitions and how to implement a shareholder value system. Both managers and investors alike will find this book useful.
Alan Shapiro Ivadelle and Theodore Johnson Professor of Banking and Finance, Graduate School of Business Administration, University of Southern California Al Rappaport lives up to his reputation as the father of shareholder value. This book is an invaluable resource for anyone committed to creating shareholder value or teaching about it. Creating Shareholder Value presents not just the basic principles and theoretical underpinnings of its subject matter but also their application through numerous well-chosen and up-to-date real-world examples.
Michael J. Mauboussin Managing Director, Equity Research, Credit Suisse First Boston Corporation Herein lie the power tools of any investor's toolbox. This significant update to the seminal Creating Shareholder Value offers investors and corporate managers a theoretically sound and practically usable guide for decision making. Business people who have been jostled by the latest management fads and buzzwords will find refuge in Rappaport's well-conceived and effective framework.
Harry M. Jansen Kraemer, Jr. President, Baxter International, Inc Dr. Rappaport does a phenomenal job of bridging the gap between shareholder value theory and practice. I highly recommend Creating Shareholder Value for CEOs, CFOs, business school students and anyone who wants to truly understand as well as create shareholder value.
Stephen F. Bollenbach President and CEO, Hilton Hotels Corporation Updates all of us on the front lines with the latest thinking about creating shareholder valuefrom the social aspects to the very specific. I recommend this book to any person seriously concerned about the function of a corporation in a market economy.
Martin L. Leibowitz, Vice Chairman and Chief Investment Officer, TIAA-CREF Rappaport's work shines a bright light on how to systematically apply fiancial theory to the pratical problems of corporate valuation. The distinction Rappaport makes between shareholder return and corporate return is particularly critical in today's markets. Every serious ananlyst should have a firm understanding of his writings.
Charles W. McCall President and CEO, HBO & Company I've had the pleasure of following Al Rappaport's work for over 20 years and I feel this is his best work ever. The insights on acquisitions and the work on performance measurements are very important for fast-growing companies. Al's principles have helped us grow from a market value of less than $100 million to over $7 billion in the past six years.
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In the past few decades there have been a lot of silly business fads that have come and gone - TQM, Six Sigma, EVA, Re-engineering, but the disciplines Rappaport details serve managers far better than these transitory buzzwords ever did.
The introductory chapter is of more philosophical nature than the remainder and the author develops his thoughts on why the shareholder value approach is the one to adhere to for businesses. Rappaport points to the moral aspects of the proprietorship that comes with owning something and to the efficiency aspects of optimized capital allocation and how the model benefits the broad masses through both their pensions and higher economic growth – in essence this is how the world rose from the middle ages. It’s much the same discussion that is being held today 30 years later. In retrospect it’s obvious that the CSR and stakeholder camp is winning the match by a mile at the moment. Capitalism is not en vogue in 2015.
The author explains the concept of shareholder value as the present value of all future free cash flows discounted by the cost of capital, net of net debt. Value is created by investing capital in the business that generates a return on investment which is higher than the cost for the invested capital. Thus, trying to increase shareholder value includes handling all the difficult choices between investing now to hopefully generate higher cash flow in the future. Rappaport is careful to differentiate the creation of shareholder value from the shareholder return on the stock market. The latter will only correlate to the former on average and over long term. He also contrasts the creation of shareholder value to the shortcomings of accounting based estimates of value creation. “How can so many managers continue to believe that stock prices are driven by short-term accounting numbers despite impressive evidence to the contrary?” Most still haven’t understood.
To me the most interesting chapters are those where Rappaport not only links the creation of shareholder value to corporate strategy and execution but also manager evaluation and remuneration. The author discusses the chance of gaining a competitive advantage in various industries and shows that management can work with a number of value drivers to increase shareholder value a) sales growth rate, b) profit margin, c) working capital investment, d) fixed capital investment and e) the cost of capital. By breaking this down on “value driver maps” the KPIs, the leading indicators, that have the highest impact on the value drivers for a specific company can be located, be it measures of customer satisfaction, quality improvements etc.
Options were for Rappaport a way to try to mitigate the risk that management would enrich themselves at the expense of the owners of the company. The author advices that the allocation of options should be tied to the above leading indicators and that to the extent the share performance plays a role, one must look to the relative price performance compared to industry peers. Today, with the benefit of hindsight of the excesses of the period around the millennium the text on options strikes you as a bit naïve. There is nothing wrong with the intent but the insight in how greedy persons would use the carte blanche of issuing options isn’t there.
Creating Shareholder Value is a short concise book. It’s theoretically stringent and you often perceive what’s being said as obvious when stated but it doesn’t go into much detail as it sweeps over several important topics. This important text makes it blatantly obvious that the short-termism that the shareholder movement often is accused of is a faulty later day rationalization.
This is a review by investingbythebooks.com