Agree or Disagree?

Discussion: "10 Ways to Create Shareholder Value" by AlfredRappaport. What are some shareholder maximization strategies that you found particularly appealing? Also, what are some general themes decision-makers in business should be cognizant of in their attempt to maximize shareholder value?

Answer:

Part 1: Here are the 10 principles in the article

Don't manage earnings or provide earnings guidance (Rappaport, 2006)

Make strategic decisions to maximize long-term value, even if it costs short term earnings (Rappaport, 2006)

Make acquisitions that maximize long term value even if it costs short term earnings (Rappaport, 2006)

Only carry assets that maximize value (Rappaport, 2006)

Give the cash to shareholders when you can't use it to create value in the business (Rappaport, 2006)

Reward CEOs and executives for delivering long-term results (Rappaport, 2006)

Reward operational-level managers for superior multi-year value (Rappaport, 2006)

Reward middle managers and front-line employees for doing a great job on the things that they are great at (Rappaport, 2006)

Require senior executives to bear the risks of ownership that shareholders do (Rappaport, 2006)

Provide investors with information relevant to value (Rappaport, 2006)

There are a few principles that stood out to me.One underlying thought that supports principles 1-5 are to use excess capital to support the business instead of withdrawing it from the company (Rappaport, 2006).Whether that means buying higher cost equipment that has a lower total cost of ownership at the expense of reporting lower profits, or reinvesting profits into expanding into a new market: excess funds should be used for the business as opposed to leaking them out via dividends or some other vessel where they can't be used for the business anymore.Another principle that spoke well was that good performance should be rewarded (Rappaport, 2006).Organizations are nothing without the individuals that drive them, rewarding individuals for good work can keep them pushing the firm to new heights.Lastly, it makes sense that senior executives have as much skin in the game as shareholders do (Rappaport, 2006).If their compensation is tied to the performance of the company, they're likely to make better decisions regarding its operations.