List of Illustrations
CHAPTER 1. SHAREHOLDER VALUE AND CORPORATE PURPOSE
Management Versus Shareholder Objectives
Shareholders and Stakeholders
Shareholders Are "Us"
CHAPTER 2. SHORTCOMINGS OF ACCOUNTING NUMBERS
Earnings An Unreliable Bottom Line
The Trouble with Accounting Return on Investment (ROI)
ROI Versus DCF Return Illustrated
Additional Shortcomings of ROI
Shortcomings of Return on Equity (ROE)
CHAPTER 3. SHAREHOLDER VALUE APPROACH
Estimating Shareholder Value
Estimating Shareholder Value Added (SVA)
The Shareholder Value Network
Appendix: Conventional Versus Shareholder Value Break-Even Analysis
CHAPTER 4. FORMULATING STRATEGIES
Strategy Formulation Process
Competitive Advantage and Shareholder Value
Strategy "Best Sellers"
CHAPTER 5. VALUING STRATEGIES
Strategy Valuation Process
Valuing Alternative Business Opportunities
Valuing Interdivisional Synergies
Choosing Optimal Investment Level for a New Business
Do Stock Repurchases Create Value?
Ten Value-Creation Questions
CHAPTER 6. STOCK MARKET SIGNALS TO MANAGEMENT
Reading the Market
Corporate Versus Shareholder Rate of Return
CHAPTER 7. PERFORMANCE EVALUATION AND EXECUTIVE COMPENSATION
CEOs and Other Corporate-Level Executives
Performance Evaluation Alternatives Shareholder Value Added (SVA)
Performance Evaluation Alternatives Residual Income
Performance Evaluation Alternatives Economic Value Added (EVA)
Performance Evaluation Alternatives Change in Residual Income or Change in EVA
Leading Indicators of Value
Target Level of Performance
Linking Rewards to Superior Performance
CHAPTER 8. MERGERS AND ACQUISITIONS
The Acquisition Process
Value Creation Framework
Do Mergers Create Value for the Acquiring Company?
Gillette's Acquisition of Duracell International
Premium Advice for Targets
CHAPTER 9. IMPLEMENTING SHAREHOLDER VALUE
Introducing Shareholder Value
Reinforcing Shareholder Value
CHAPTER 10. THE SHAREHOLDER SCOREBOARD
A Rising Tide Doesn't Lift All Stocks
Investing as a Game of Expectations
About the Author
Dr. Alfred Happaport, the Leonard Spacek Professor Emeritus of J. L. Kellogg Graduate School of Management at Northwestern University, developed the idea for the Shareholder Scoreboard, published annually by The Wall Street Journal. He is co-founder and former Chairman of the Board of The Alcar Group Inc., whose consulting and education practices are now part of The LEK/Alcar Consulting Group, LLC, the U.S. operation of a worldwide strategy consulting firm. He has been a guest columnist for The Wall Street Journal, The New York Times, and Business Week, and lives in La Jolla, California.
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 value from 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.