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November 29, 2012

The Economist (and Bill Clinton?) on shareholder value: "Mend it; don't end it."

See in The Economist by Schumpeter Taking the Long View on the "cult" of shareholder value. Scrap it for its follies and abuses? Or tweak and fix it? It's hard to imagine a more important conversation for publicly-traded companies. Excerpts:

Rather than junking shareholder value, companies should tweak it. Some are getting better at this.... L’Oréal and Air Liquide have offered shareholders bonuses for holding shares longer than a certain period of time. Google, LinkedIn, Zynga and other tech companies have adopted dual-class voting structures that allow the founders to resist the pressure to produce short-term results.

Several companies allow their chief executives to exercise their share options only after retirement, to encourage long-term thinking. Giving managers ordinary shares (rather than options) which they cannot sell for several years aligns their interests even more closely with those of ordinary shareholders. As Bill Clinton once said of affirmative action, the best way to deal with the shortcomings of shareholder value is to “Mend it; don’t end it.”

Posted by JD Hull at November 29, 2012 02:25 PM


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