No open-access location is known for this record yet.
No open-access location is known for this record yet.
A new study shows that shareholders and job seekers have a common interest: high returns on capital Continental Europe should pursue its social goals through deregulation In Britain and the United States, maximizing shareholder value is universally accepted as management's paramount goal. While some continental Europeans share this point of view,(*) most continue to believe that shareholder value comes only at the expense of other stakeholders, leaving in its wake diminished job security, higher unemployment, poorer products and services, and weaker overall economic performance. Research conducted by the McKinsey Global Institute has shown that a focus on shareholder value is second only to open and competitive product markets in accounting for high productivity.(**) A study of the relationship between shareholder value creation, labor productivity, and employment growth in competing countries across the Triad (Germany, Japan, and the United States) found that winning companies are more productive, create more shareholder value, and grow employment faster than other players.(***) To broaden and deepen this research, we recently studied the performance of more than 2,700 companies from 20 countries over a ten-year period. We found that, contrary to the prevailing European view, a focus on shareholder value boosts productivity and liberates resources that benefit stakeholders of all kinds in the long term. Easier said than done Creating shareholder value is what all managers should strive for but even when they do, not all accomplish their goal. In the sample we studied, the average country spread over the weighted average cost of capital was basically zero; in other words, no value was created for shareholders above normal expected levels of return. The market is a stern disciplinarian. If shareholders' wealth is to be increased, returns must exceed expectations, otherwise a company's stock price will fall. Overview of companies studied Number of sample companies par country United States 1,230 Japan 610 United Kingdom 180 Canada 160 Australia 82 Germany 45 France 40 Belgium 39 Italy 38 Denmark 37 Hong Kong 37 Singapore 36 Spain 36 Austria 32 Malaysia 28 Thailand 27 Netherlands 26 Norway 26 Switzerland 26 New Zealand 25 TOTAL 2,760 At the corporate level, just under half of all the companies in the sample managed to create shareholder value during the period covered by our survey (Exhibit 1). Even in the United States, where the principles of corporate governance are most closely aligned with shareholders' interests, the figure was just 55 percent. Beating the weighted average cost of capital over a longer period has proven even more difficult. Over a period of twenty years, only 10 of the 50 largest US companies generated above-expected shareholder returns. The list includes Merck, Coca-Cola, Johnson & Johnson, and Pfizer, but excludes other household names such as General Motors and DuPont [ILLUSTRATION FOR EXHIBIT 2 OMITTED]. Trends in value creation vary from country to country. At one extreme, virtually all the companies from Singapore, Thailand, and Malaysia that we studied managed to provide above-expected returns to shareholders over a ten-year period, averaging a substantial spread over their weighted average cost of capital. At the opposite extreme, the German companies in our sample undershot their cost of capital by around 38 percent, and the average continental European company achieved a negative spread [ILLUSTRATION FOR EXHIBIT 3 OMITTED]. …
Loading…
Imported from OpenAlex (CC0) — nothing here is generated.