Ten Ways To Create Shareholder Value By Alfred Rappaport

There are numerous reasons that contribute to corporate firms’ interest in realizing short term returns. For instance, the average holding period for stocks in corporations has significantly dropped to less than one year as compared to about seven years in the 1960s. According to Alfred Rappaport, some executives prefer to address the concerns of the majority of shareholders while neglecting the interest of long term shareholders. It takes approximately ten years of value-creating cash flows for majority of companies to justify their stock prices. It is, therefore, extremely essential for companies to emphasize the pursuit of long term value maximization. In Ten Ways to Create Shareholder Value, Alfred Rappaport outlines governance principles that are necessary for companies’ value creation. …show more content…
Majority of public companies pays extraordinary attention to earnings by engaging in the “earnings expectation game” (Rappaport, 2006). Focusing on earnings alone has detrimental implications. It is, therefore advisable for executives to shun the practice of managing earnings or providing guidelines regarding earnings. The author further asserts that it is vital for companies to emphasize only those strategies that maximize expected value above all the other considerations. In addition to this, the author addresses the significance of making acquisitions that maximize expected value. It is pertinent to appreciate the fact that the author maintains that it should not matter whether short term earnings fall as a result of maximizing expected value. As far as value maximization is concerned, the author point out that it is pivotal for companies to deal in assets that contribute towards maximizing value. The author does an exemplary job in explaining ways through which the principles can be implemented in public